Markets have the memory of a goldfish. So when Federal Reserve Chair Janet Yellen said Wednesday that a December rate hike was still on the table, stocks turned lower--even though she wasn't saying anything new.
The Fed Chair doubled-down on the possibility of a December rate hike in a testimony to Congress. However, as she has done again and again, she prefaced that the data would have to support the case.
The Fed is "expecting the economy will continue to grow at a pace to return inflation to our target over the medium term," Yellen said. "If the incoming information supports that expectation ... December would be a live possibility."
The 'December' keyword sent markets into a tizzy, though, with stocks nixing earlier gains to trade modestly lower for much of the day through to close. The S&P 500 fell 0.37%, the Dow Jones Industrial Average declined 0.36%, and the Nasdaq slipped 0.08%.
"The market is clearly sensing something in Yellen's response to the hiking question... So much so, in fact, that December hiking probabilities are now up at 54%," David Ader, analyst at CRT Capital, wrote in a note. "We are vacillating on the December hike thing [having] been in the 'no' camp, but the Fed's words on the matter clearly have it solidly on the table."
Yellen's comments put even more focus on Friday's jobs reports, one of two that the Fed will get a chance to analyze before its mid-December meeting. The official jobs report, out Friday, is expected to show 205,000 jobs added to nonfarm payrolls in October, rebounding after two months of weakness. A strong reading could give the Fed just enough justification to hike rates for the first time in nearly a decade.
"We believe the Fed is still very much on the fence about whether to hike rates in December or to wait until early 2016," said Burt White, chief investment officer for LPL Financial. "The two jobs reports will go a long way toward determining whether the Fed hikes rates at its next meeting in December."
Wednesday's data went some of the way towards backing up the Fed's stance that the U.S. economy is improving. The services sector expanded at a faster-than-expected pace in October, according to the Institute for Supply Management's non-manufacturing index, after the measure rose to its highest level in three months. Meanwhile, the U.S. trade deficit narrowed 15% in September to $40.8 billion, its lowest level in seven months. The reading could push third-quarter GDP estimates slightly higher.
Meanwhile, media stocks looked worse for wear after a series of disappointing earnings reports. 21st Century Fox(FOXA) - Get Report was 6.7% lower as sales at its film studio fell 28% to $1.79 billion on weak box office results for The Fantastic Four. CBS(CBS) - Get Report added 0.4% despite suffering a decline in revenue tied to television licensing and pay-per-view. Sales fell 3.3% to $3.26 billion.
However, fellow media company Time Warner (TWX) reported a better-than-expected quarter, earning $1.25 a share, 16 cents above forecasts. Revenue jumped 5% to $6.56 billion, driven by strong growth in its HBO segment. Media companies are facing higher costs as they compete with streaming services such as Netflix(NFLX) - Get Report .
Better-than-expected quarterly reports included Tesla(TSLA) - Get Report which spiked after guiding for vehicle deliveries of up to 19,000 in the fourth quarter as it ramps up production of its Model X. Wendy's(WEN) - Get Report was also higher as quarterly profit beat estimates on wider margins.
In other news, Kraft Heinz(KHC) - Get Report announced plans to slash 2,600 factory jobs and close seven U.S. facilities and one Canadian plant over the next 12 to 24 months. The plans follow on from an "extensive review" of its supply chain. The company said the downsizing will eliminate excess capacity and limit redundancies after Kraft's merger with Heinz earlier this year.