Weekly Market Outlook

Bill Gross, the billionaire Janus Capital Group Inc. money manager, criticized Fed Chair Janet Yellen’s suggestion that she could consider further asset purchases as the equivalent of “providing a walker or a wheelchair for an ailing economy.”

Yellen, speaking Friday at a conference of central bankers and economists in Jackson Hole, Wyoming, said while the U.S. economy has strengthened to the point that interest rate hikes are possible, further asset purchases must remain part of the Fed’s toolkit. Gross, who runs the $1.5 billion Janus Global Unconstrained Bond Fund, has long criticized central bankers in the U.S., Europe and Japan for keeping interest rates ultra-low and artificially inflating asset prices without adding sustainable economic growth.

“She is opening the door to creating even greater asset bubbles as have the BOJ and ECB and SNB by purchasing corporate bonds and stocks,” Gross wrote Friday in an e-mail response to questions. “This is not capitalism. This is providing a walker or a wheelchair for an ailing economy. It may never walk normally again if monetary policy continues in this direction.”

Gross said Yellen’s comments didn’t take a September rate hike off the table, especially if job growth is healthy. The Labor Department reports August employment data on Sept. 2. The probability of a hike at the Sept. 21 Fed meeting has risen to 38 percent from 15 percent two weeks ago, according to data compiled by Bloomberg.

‘Worse Ends’

“To the extent that next month we see a decent job growth number, then I think for sure or close to for sure, you know, in September we’re going to see a Fed hike of 25 basis points,” Gross said in an interview on CNBC. “The market hadn’t expected that.”

Tad Rivelle, chief investment officer of fixed income at TCW Group, warned that central bank intervention to keep rates low and prop up asset prices may worsen the impact of an inevitable end to the current credit cycle.

“Every cycle in human history has ultimately come to an end,” Rivelle, who helps oversee $195 billion for TCW, said in a Bloomberg Television interview Friday. “Credit-enhanced cycles come to worse ends than the normal kind.”

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Weekly Market Outlook

After weeks of anticipation and a nine-page speech by Federal Reserve Chair Janet Yellen, gold traders are signaling they have no clearer picture of when U.S. interest rates will rise.

Gold rose as much as 1.6 percent after Yellen said that while the case for a rate hike has strengthened recently, a gradual increase will be appropriate “over time,” initially easing concerns that the Fed would make a move next month. The gains were all but erased after Fed Vice Chairman Stanley Fischer said her remarks leave open the possibility of boosting rates in September.

“You get a committee member saying one thing and another saying something else,” Graham Leighton, a trader at Marex Spectron Group in New York, said in a telephone interview. “It’s been incredibly frustrating to financial markets.”

The case to raise interest rates is getting stronger as the U.S. economy approaches the central bank’s goals, Yellen said in the text of a speech Friday to central bankers and economists in Jackson Hole, Wyoming. The economy is “nearing” the Fed’s goals of full employment and stable prices, share said. The Fed chair didn’t discuss the specific timing of a rate move in her first public comments since June.

Gold futures for December delivery rose 0.1 percent to settle at $1,325.90 an ounce at 1:41 p.m. on the Comex in New York. Prices fell 1.5 percent this week, the most since mid-July.

‘Gradual Increases’

“Looking ahead, the FOMC expects moderate growth in real gross domestic product, additional strengthening in the labor market, and inflation rising to 2 percent over the next few years,” Yellen said in her prepared remarks. “Based on this economic outlook, the FOMC continues to anticipate that gradual increases in the federal funds rate will be appropriate over time to achieve and sustain employment and inflation near our statutory objectives.”

Bullion futures posted the biggest first-half gain since 1979 as bets that the Fed will be slow to tighten monetary policy helped boost demand for the metal. Low rates are a boon for gold, which becomes more competitive against interest-bearing assets. The rally has sputtered in the second half as signs of an improving U.S. economy rekindled rate concerns, prompting some investors to rein in bullish bets.

Fischer, speaking in an interview with CNBC at Jackson Hole, said “the evidence is that the economy has strengthened.” Asked whether Fed watchers should be looking for such a move in September, and possibly for two hikes this year, Fischer said Yellen’s remarks were “consistent with answering ‘yes’ to both of your questions.”

The odds of an interest rate increase in September climbed to 40 percent, from 32 percent on Thursday, according to Fed funds data.

“The initial headlines after the release of Janet Yellen’s speech definitely caused some knee-jerk reactions in the markets,” Chris Gaffney, the president of EverBank World Markets, said in an e-mail. “Ultimately, we think Yellen’s speech really doesn’t give us anything new. They continue to be data dependent and the members still ‘believe’ growth will return in the coming months.”

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Weekly Market Outlook

U.S. stocks slipped in a volatile session, as remarks from Federal Reserve officials lifted optimism on the economy while also bolstering speculation interest rates could rise as soon as next month.

A speech by Fed Chair Janet Yellen sparked an early surge in equities amid a bullish economic assessment, which included a lack of clear guidance on when a rate boost may come. Equities then tumbled after Vice Chairman Stanley Fischer said Yellen’s comments were consistent with a possible September increase, only to recover much of their losses in a final-hour rebound. Utilities and phone companies led the declines, while banks, technology and health-care shares climbed.

“Fischer wants to make September still on the table,” said Mark Kepner, managing director and equity trader at Themis Trading LLC in Chatham, New Jersey. “He mentioned he’s not concerned about the low growth we have had the first six months. He’s saying growth is more a productivity and investment story. There are light volumes, lightly staffed desks and these moves can easily happen.”

The S&P 500 Index fell 0.2 percent to 2,169.04 at 4 p.m. in New York, after rising as much as 0.7 percent. The gauge extended a monthly slide and capped its first back-to-back weekly drop in two months. The Dow Jones Industrial Average lost 53.01 points, or 0.3 percent, to 18,395.40, after wiping out a 123-point gain. The Nasdaq Composite Index rose 0.1 percent. About 6.6 billion shares traded hands on U.S. exchanges, 3 percent below the three-month average.

Expectations for a rate increase climbed after Fischer spoke, with traders pricing in a 42 percent probability of a move next month, from 32 percent after Yellen’s remarks. Odds are now nearly 63 percent the central bank will act by December, up from 42 percent two weeks ago, based on fed fund futures data compiled by Bloomberg.

“In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months,” Yellen said in the text of a speech to central bankers and economists in Jackson Hole, Wyoming.

Wagers on higher borrowing costs had increased amid a chorus arguing the case for policy tightening. Kansas City Fed President Esther George yesterday reiterated her call that higher rates are warranted, while Dallas Fed chief Robert Kaplan said “the case is strengthening” for another increase. They joined New York Fed chief William Dudley and his San Francisco counterpart John Williams who signaled last week a rate increase could be on the table in coming months.

“At the end of the day, headlines weren’t as dramatic as people were scared they might be,” said Walter Todd, who oversees about $1.1 billion as chief investment officer for Greenwood Capital Associates LLC in South Carolina. “It doesn’t appear she’s pounding the table saying rates are going up next month.”

The rally that drove the S&P 500 to a series of records since early July lost momentum amid the recent hawkish remarks from Fed officials and uneven economic data. The benchmark posted its first three-day slide in two months, interrupting a period of calm that had the CBOE Volatility Index on track for its lowest mean level for any August since 1994. The measure of market turbulence known as the VIX held at a seven-week high, little changed Friday after swinging between an 11 percent drop and a nearly 10 percent jump.

With policy makers assessing data to guide their rate decisions, a report today showed the U.S. economy grew less than previously reported last quarter, capping a sluggish first-half performance propped up mainly by consumer spending. A separate measure showed consumer confidence eased in August to a four-month low as Americans become less optimistic about their finances for the year ahead.

As the earnings season wraps up, almost 80 percent of S&P 500 companies have beaten profit estimates, while 55 percent topped sales expectations. Analysts estimate third-quarter income for the gauge’s members will contract for a sixth-straight quarter, forecasting a 1.3 percent decline.

In Friday’s trading, seven of the S&P 500’s 10 main industries retreated. Stocks perceived as defensive were hardest hit, continuing a recent about-face among this year’s leaders as utilities and phone companies slumped more than 1 percent, while consumer staples lost 0.5 percent. Raw-materials producers lost 0.6 percent as a gauge of the dollar surged the most in two months.

Among shares moving on corporate news, Autodesk Inc. jumped 8.1 percent to a record after surprising investors with a quarterly profit, and forecasting a narrower-than-estimated loss in the current period. Ulta Salon Cosmetics & Fragrance Inc. sank 6.1 percent, the most since November, as its current-quarter outlook disappointed.

Herbalife Ltd. declined 2.3 percent to a six-week low, after losing as much as 7.8 percent. Hedge fund manager Bill Ackman told CNBC that top investor Carl Icahn is trying to sell his stake in the nutrition company. Herbalife declined to respond to Ackman’s comments, while representatives for Icahn and Ackman didn’t immediately respond to requests for comment.

Alere Inc. slipped 2.8 percent after suing Abbott Laboratories to compel the completion of their pending $5.8 billion takeover deal, claiming the medical-device maker failed to get U.S. antitrust clearance in an effort to scuttle the contentious transaction. Abbott was little changed.

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Weekly Market Outlook

The dollar rallied, then plunged, and rebounded against other major currencies an hour later as traders worked through the implications of Federal Reserve Chair Janet Yellen’s speech in Jackson Hole, Wyoming. Yellen said the performance of the U.S. economy and the outlook for inflation are giving the central bank more scope to raise interest rates, yet at the same time said monetary tightening will be gradual. Fed Vice Chairman Stanley Fischer shed more light later, saying a rate increase in September is possible.

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