Interest Rate Uncertainty Contributing To Choppy Trading On Wall Street

Stocks have shown a lack of direction over the course of morning trading on Friday, with the major averages bouncing back and forth across the unchanged line following the sharp pullback seen in the previous session.

Currently, the major averages are turning in a mixed performance. While the Nasdaq is down 22.21 points or 0.2 percent at 14,163.43, the Dow is up 146.74 points or 0.4 percent at 35,388.33 and the S&P 500 is up 6.55 points or 0.2 percent at 4,510.63.

Uncertainty about the outlook for interest rates is contributing to the choppy trading on Wall Street following comments from several Federal Reserve officials.

In an interview with Bloomberg News on Thursday, St. Louis Fed President James Bullard indicated he supports raising interest rates by a full percentage point by the start of July, including a possible 50-basis point hike.

“I was already more hawkish but I have pulled up dramatically what I think the committee should do,” said Bullard, who is a voting member on the Federal Open Market Committee this year.

Bullard’s comments came after a report from the Labor Department showed consumer prices spiked by the highest annual rate in 40 years in January.

However, other Fed officials have subsequently pushed back against the idea of raising rates by 50 basis points at the next Fed meeting in mid-March.

Atlanta Fed President Raphael Bostic told CNBC he still favors a 25-basis point increase in March, while Richmond Fed President Tom Barkin said he would “have to be convinced” of the need for a 50-basis-point rate hike.

San Francisco Fed President Mary Daly also said a 50-basis-point hike is “not my preference,” according to CNBC’s Steve Liesman.

Currently, CME Group’s FedWatch Tool is indicating a 61.8 percent chance of a 50-basis point rate hike next month and a 38.2 percent chance of a 25-basis point increase.

Following the inflation data and Bullard’s comments, the chance of a 50-basis point rate increase was nearly 100 percent on Thursday.

Despite the lack of direction being shown by the broader markets, energy stocks have moved sharply higher on the day. The strength in the sector comes as the price of crude oil for March delivery is jumping $1.16 to $91.04 a barrel.

Reflecting the strength in the energy sector, the Philadelphia Oil Service Index is up by 3.4 percent, the NYSE Arca Natural Gas Index is up by 2.3 percent and the NYSE Arca Oil Index is up by 2.2 percent.

Gold stocks are also seeing substantial strength despite a modest decrease by the price of the precious metal, with the NYSE Arca Gold Bugs Index surging up by 2.9 percent.

Tobacco, biotechnology and housing stocks are also seeing significant strength on the day, while most of the other major sectors are showing more modest moves.

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower on Friday, with the Japanese markets closed for a holiday. China’s Shanghai Composite Index fell by 0.7 percent, while Hong Kong’s Hang Seng Index edged down by 0.1 percent.

The major European markets have also moved to the downside on the day. While the French CAC 40 Index has tumbled by 1.2 percent, the U.K.’s FTSE 100 Index and the German DAX Index are both down by 0.2 percent.

In the bond market, treasuries are regaining ground following the steep drop seen in the previous session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 2.6 basis points at 2.005 percent.