Wall Street took increased chances of a March rate hike in stride on Friday, remaining calm after Federal Reserve Chair Janet Yellen telegraphed a move soon.
The S&P 500 rose 0.05%, the Dow Jones Industrial Average gained 0.01%, and the Nasdaq crept 0.16% higher. Stocks pared losses after Yellen made remarks to the Executives' Club of Chicago on Friday afternoon.
"At our meeting later this month, the Federal Open Market Committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate," Yellen told the Chicago audience. Yellen also said current conditions support three rate hikes this year.
A turn toward a more hawkish Fed in recent months has raised the prospect of a move in March and boosted Wall Street's confidence in the economy. Fed funds futures currently price in a March move at 79%, according to CME Group, up roughly 200 basis points from futures earlier in the day and more than triple the chances just a week earlier. At a separate event on Friday, Fed Vice Chairman Stanley Fischer said market estimates for a rate hike in March looked correct.
"The Fed's baby gloves are coming off as she's suggested a rate increase in March may be on the table," said E*TRADE vice president of Investment Strategy Mike Loewengart. "While [Yellen's] comments today regarding the state of our economy were positive, investors are keeping a watchful eye on next week's job numbers before calling this one. The Fed has indicated they plan to follow through with three rate hikes this year, but this a delicate balancing act and we've been surprised before."
Fed minutes from the January-February meeting said another rate hike would come "fairly soon." The Federal Open Market Committee, the group that decides when interest rates will move, next meets from March 14 to 15.
Stocks stepped back from Wednesday's records on Thursday as relief over President Donald Trump's on-message speech to Congress on Tuesday began to fade, replaced by questions as to how he will execute his promises. Trump has been light on details for tax and health care reform and changes to the budget since his election in November.
Crude oil held slightly higher on Friday afternoon despite an increase in drilling activity in the U.S. The number of active rigs drilling for crude rose by 7 in the past week to a total 609, according to Baker Hughes data. That marked its highest level since October 2015.
West Texas Intermediate crude was up 1.4% to $53.33 a barrel on Friday afternoon.
Services activity in the U.S. strengthened in February, according to the Institute for Supply Management. The ISM non-manufacturing index rose to 57.6 in February from 56.5 in January. Analysts anticipated activity to hold at January levels. New orders in February improved to 61.2 from 58.6.
However, a separate reading from Markit Economics showed weakening services activity in February. Markit's PMI Services Index fell to a reading of 53.8 in February, down from a 14-month high of 55.6 in January. February's reading was at its lowest in five months.
Caterpillar (CAT) rose by less than 1% on Friday, after news on Thursday that federal agents had searched its offices. CEO Jim Umpleby has apologized to the company's employees for raids that took place on Thursday by federal authorities at the company's Illinois facilities. The search was in connection with an investigation into Caterpillar's Swiss-based subsidiary which has been under review for over three years.
Snap (SNAP) advanced again on Friday, rising 10%, after making its market debut on Thursday. The disappearing message app wowed investors on Thursday in its first day of trading, as shares rose 44% above the IPO price of $17 per non-voting share to close at $24.48. The initial price was above the expected range of $14 to $16. The photo-sharing company, which operates the popular Snapchat app, offered 200 million shares.
Costco (COST) tumbled 4% after reporting a disappointing second quarter and announcing plans to hike its membership fees. The bulk warehouse retailer earned $1.17 a share over its recent quarter, down from $1.24 a share a year earlier and below consensus of $1.36. Sales increased 6% to $29.13 billion, falling short of estimates of $29.85 billion. Comparable-store sales climbed 3%, weaker than targeted 3.6% growth. Costco said annual membership fees will increase by $5 for North American individual and business customers, effective June 1.