Markets tumble after Fed officials talk about a rate hike

Dow sank 254 (closing near the lows), decliners over advancers 4-1 & NAZ lost 61.  The MLP index plunged 9+ to the 304s & the REIT index fell 2+ to the 313s.  Junk bond funds retreated & Treasuries found buyers today.  Oil had another major decline, closing near its multi year lows, & gold slid lower.

AMJ (Alerian MLP Index tracking fund)

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CLZ15.NYM

....Crude Oil Dec 15

....41.80

...1.13

(2.6%)

Federal Reserve officials stressed that policy should be tightened only gradually after interest rates are increased for the first time since 2006, with NY Fed pres William C. Dudley saying the conditions for liftoff “could soon be satisfied.”  He devoted considerable space in his speech to explaining why the central bank should proceed with caution as it raises rates above zero.  “After liftoff commences, I expect that the pace of tightening will be quite gradual,” he said.  “In part, that is because monetary policy is not as stimulative as the low level of the federal funds rate might suggest.”  Dudley’s speech followed comments by the Chicago Fed’s Charles Evans, Richmond’s Jeffrey Lacker & St. Louis Fed chief James Bullard.  Yellen made welcoming remarks at a conference, but didn’t discuss the policy outlook.  Fed Vice Chairman Stanley Fischer will give a speech this evening on the transmission from exchange-rate changes to output & inflation.  Dudley said the Fed’s preferred gauge of price pressures was “substantially” short of its target, though the payroll report that showed employers created 271K new jobs in Oct was strong & called the 0.3% rise in hours worked a solid gain.
“I see the risks right now of moving too quickly versus moving too slowly as nearly balanced,” he said, explaining that the lingering hangover from the financial crisis & 2007-2009 recession may have depressed the neutral rate of interest & that even though the Fed was near zero, “the current monetary policy stance is not exceptionally stimulative.”  Evans also stressed the need to tighten policy slowly and for officials to spell out this strategy as clearly as possible.  “It is critically important to me that when we first raise rates the FOMC also strongly and effectively communicates its plan for a gradual path for future rate increases,” he added.

Fed Officials Stress Gradual Pace of Rate Rises After Liftoff

American truckers have developed a slow leak.  U.S. shipments as measured by the latest Cass Freight Index dropped 5.3% last month from a year ago, making it the worst Oct since 2011.  The year-over-year decline was the 8th straight & the biggest since Nov 2009.  Trucks transport almost 70% of the nation's freight by weight.

Railroads are also having a rough go of it, with combined carload & intermodal originations down 4.3% in Oct from the same period last year.  Shipments of products by road, rail & water are considered barometers of the economy's current progress, & the latest data indicate a chill has set in.  To figure out what's behind the weakness, one only has to look at the woes affecting American manufacturers, a H1 surge in inventory expansion, a fragile world economy & cutbacks in the nation's oil & gas fields.

With slumping demand for raw materials & less capital spending in the oil patch at the same time companies work off bloated inventories, the onus for transportation lies with American consumers.  Any slowdown in household spending & the recent weakness in trucking will probably extend thru early 2016.

American Shippers Had Their Worst October in Four Years

Department store operator Kohl's reported better-than-expected quarterly net sales, helped by strong back-to-school sales, sending the company's shares higher.  Same-store sales rose 1% in Q3, in line with the estimate.  A surprise drop in comparable sales in the qtr at rival Macy's (M) had set alarm bells ringing in the department store industry, hitting those shares hard.  EPS was 63¢, versus 70¢ a year earlier.  Excluding items, the company had EPS of 75¢.  Net sales rose 1.2% to $4.43B.  Analysts had expected EPS of 69¢ on revenue of $4.4B.  The stock jumped up 2.63.  If you would like to learn more about KSS, click on this link:
club.ino.com/trend/analysis/stock/KSS?a_aid=CD3289&a_bid=6ae5b6f7

Kohl's Shares Jump on Strong Back-to-School Sales

Kohl's (KSS)

Stocks are spooked.  It's that simple.  The Fed is finally recognizing that economic data is coming in good enough to justify a 25 basis point rate hike (followed by one or 2  meetings with no action).  The market have become addicted to current low rates & fears any increase.  Traders have to grow up & relax.  The economy & stock market can handle a rate increase which will leave interest rates close to record lows.  They should be more worried about the economy that has not been able to increase the growth rate from mediocre levels.  Dow closed near the lows today, & is down 350 YTD.

Dow Jones Industrials