U.S. stocks fall, yields up after Fed boosts rate hike expectations

Wed Nov 4, 2015 4:42pm EST
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By Sinead Carew

NEW YORK (Reuters) - Wall Street stocks ended down on Wednesday as energy stocks turned lower on a drop in oil prices and two Federal Reserve officials said U.S. economic strength could justify a December interest rate hike.

The U.S. dollar hit an almost three-month high and U.S. Treasury yields soared after the Fed comments, building on a rise from unexpectedly strong private-sector U.S. job growth and other data that reflected well on the world's largest economy.

Yellen told Congress the Fed expects the economy to continue to grow at a pace that returns inflation to policy-makers' target and that "if the incoming information supports that expectation ... December would be a live possibility" for a rate increase at the Fed's next policy-setting meeting.

U.S. stocks took dive a after Yellen's comments, and then New York Fed President William Dudley agreed with Yellen. While a rate hike should signal economic strength, traders often balk at the prospect as higher rates can make equities less attractive than bonds to some investors and would raise borrowing costs.

Along with the rate hike comments, the market is consolidating a massive rally, said Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.

"The gains have been strong over the past five weeks and we're due for more of a breather here," said O' Rourke.

The Dow Jones industrial average .DJI fell 50.57 points, or 0.28 percent, to 17,867.58, the S&P 500 .SPX lost 7.48 points, or 0.35 percent, to 2,102.31 and the Nasdaq Composite .IXIC dropped 2.65 points, or 0.05 percent, to 5,142.48.

U.S. two-year Treasury note US2YT=RR yields hit 0.8200 percent, their highest since April 2011. Three-year US3YT=RR yields hit 1.1484 percent, their highest in four months, while five-year US5YT=RR yields hit 1.6520 percent, their highest in roughly three months.   Continued...

Traders work on the floor of the New York Stock Exchange November 4, 2015. REUTERS/Brendan McDermid