U.S. Stocks Knocked Back by Fed Testimony, Oil's Renewed Drop

Stocks moved sharply lower in early action Thursday as investors continue to contemplate guardedly upbeat comments from Federal Reserve Chair Janet Yellen peppered with her concerns that financial turmoil overseas could reach the U.S. She also didn’t step back from the Fed’s current policy of considering interest rate hikes.

Aside from Yellen, who testifies again today, traders were keeping a close eye early Thursday on the bond market, where 10-year Treasury yields plunged below 1.6%, a sign of continued expectations for economic weakness and of some investors seeking relatively “safer” places than the stock market to put their money. Gold—another safe haven—soared overnight, and oil continued to move lower. Yellen said U.S. financial conditions have become “less supportive of growth,” and cited oil prices, weakness in overseas markets, and pressure on inflation. But she also highlighted what she said is strength in hiring, something the Fed will have to watch going forward as it looks for any sign of incipient inflation.

The Fed had gone into 2016 contemplating four rate hikes, but investors have become much less certain of that over the last few weeks. Some had hoped Yellen would discuss possible rate lowering or take future hikes off the table. Yellen did neither, and now bullish traders seem disappointed. Stocks initially rallied Wednesday as Yellen spoke, but fell by the end of the day, with the Dow Jones Industrial Average ($DJI) and S&P 500 (SPX), in figure 1, now down four sessions in a row. The NASDAQ Composite (COMP) eked out a small gain, led by rallies in Netflix, Inc. NFLX and Google-parent Alphabet, Inc. GOOG GOOGL).

Tesla Electrifies. Shares of Tesla Motors, Inc. TSLA soared in post-market hours Wednesday despite heavy Q4 losses for the company. Investors were cheered by the company’s guidance, which forecast strong demand for the company’s electric cars. Tesla shares, down sharply so far this year, posted double-digit gains overnight. In other earnings news, Cisco Systems, Inc. CSCO reported stronger-than-expected Q2 profit, sending its shares climbing after hours.

Oil Misery Continues: U.S. oil futures fell overnight to new 12-year lows below $26.50. The complex had rallied for a short time on Wednesday after a weekly supply report showed a surprise draw in U.S. oil stocks, but then tumbled to close at three-week lows as worries persisted about U.S. and global demand. Some market watchers noted that even though the report showed U.S. oil supplies down, total oil supplies, which include products like gasoline, actually rose during the week to all-time highs, while U.S. imports fell sharply, all signs of lagging demand. Yellen’s testimony about global economic weakness and a bearish oil outlook released by Goldman Sachs also played into oil’s losses.

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