HD Home Depot Inc

By Ellie Ismailidou and Barbara Kollmeyer, MarketWatch

Energy stocks rise; dollar briefly drops below Yen100; Dudley hints at September hike

U.S. stocks on Tuesday pulled back from the records set a day earlier, as investors weighed hawkish comments by Federal Reserve officials against sharp gains for oil futures, a weakening dollar and fresh consumer-price data that showed U.S. inflation remains tepid.

William Dudley, president of the New York Federal Reserve Bank (http://www.marketwatch.com/story/feds-dudley-says-september-rate-hike-is-possible-2016-08-16), on Tuesday said the time for another interest-rate increase is approaching and a rate increase as soon as September is a possibility, adding to the selling pressures on U.S. equities.

The S&P 500 index fell 8 points, or 0.4%, to 2,183, led by a 1.6% drop in telecom stocks, followed by a 0.7% loss in utility shares. Telecom and utilities are two income-paying stock sectors traditionally viewed as bond alternatives--which typically take a hit when the market's interest-rate expectations rise.

The energy and materials sector were the only S&P 500 sectors in positive territory, both up roughly 0.2%, boosted by strong gains in crude-oil futures (http://www.marketwatch.com/story/oil-stumbles-as-investors-cash-in-on-gains-but-sentiment-still-upbeat-2016-08-16).

The Dow Jones Industrial Average fell 53 points, or 0.3%, to 18,583, pressured by a 1.2% drop in Johnson & Johnson but boosted by a 0.4% gain in Apple Inc.(AAPL), which moved higher after regulatory filings showed Warren Buffett's Berkshire Hathaway Inc. (BRKA) (BRKA) loaded up on shares. Others, such as George Soros's hedge fund Soros Asset Management and David Einhorn's Greenlight Capital, reduced their stakes in the iPhone maker.

Read: Why Warren Buffett is grabbing Apple stock while other big names run away (http://www.marketwatch.com/story/why-warren-buffett-is-grabbing-apple-stock-while-other-big-names-run-away-2016-08-15)

Among individual companies, Home Depot Inc.(HD), was dipping in and out of negative territory after the do-it-yourself retailer reported same-store sales rose 5.4% in the second quarter.

The Nasdaq Composite Index was down 24 points, or 0.5%, to 5,237.

The S&P 500, Dow industrials, and Nasdaq Composite all set all-time closing highs (http://www.marketwatch.com/story/us-stock-futures-inch-higher-ahead-of-empire-state-reading-2016-08-15) Monday, marking the second time in three sessions that all three indexes notched records on the same day. Until last Thursday, however, the benchmarks hadn't scored simultaneous record closes since 1999.

Read: The golden lesson from this wild market's past 6 months (http://www.marketwatch.com/story/dont-miss-this-golden-lesson-from-the-last-6-months-in-markets-2016-08-16)

Stock investors were focusing Tuesday on the yen's strength (http://www.marketwatch.com/story/yen-soars-to-one-month-high-against-dollar-2016-08-16), which broke below the Yen100-mark against the dollar early in the morning, a level not seen since shortly after the U.K.'s vote to leave the European Union, but later retreated somewhat. The dollar, as gauged by the U.S. ICE Dollar Index was down 0.5% at 94.80.

Opinion:Here's the safest place for your money with stocks at record highs (http://www.marketwatch.com/story/heres-the-safest-place-for-your-money-with-stocks-at-record-highs-2016-08-15)

(http://www.marketwatch.com/story/heres-the-safest-place-for-your-money-with-stocks-at-record-highs-2016-08-15)Given the yen's status as the haven currency for global investors, "there is a sense that when the yen is stronger, it represents broader risk aversion in global markets," said Quincy Krosby, market strategist at Prudential Financial.

Still, Krosby argued that low liquidity in the summer months along with expectations of dovish central banks in the European Union and in the U.K. were contributing to the yen's strength--rather than a feeling of panic or extreme risk aversion in the market. That also explained why U.S. stocks were still hovering near their all-time highs, despite a slight pullback.

"When stocks reach new highs and volumes are at August's [low] levels, you will see some consolidation and some digesting begin," she said.

Also weighing on stocks was a report showing the U. S.consumer-price index was unchanged in July (http://www.marketwatch.com/story/consumer-price-index-unchanged-in-july-2016-08-16), adding to the risk-off sentiment that started in Asia, where the Nikkei 225 index dropped 1.6%, and in Europe, where stocks were also struggling.

But housing starts rose to their second-highest rate (http://www.marketwatch.com/story/housing-starts-rise-to-second-highest-rate-since-recession-on-multifamily-rebound-2016-08-16)since the recession on multifamily-home rebound, the Commerce Department said Tuesday. And industrial production in July (http://www.marketwatch.com/story/us-industrial-output-jumps-in-july-2016-08-16) saw the biggest one-month gain in 20 months, suggesting that the factory sector could be on the mend.

Overnight, San Francisco Fed President John Williams said the central bank should consider aiming for higher inflation (http://www.marketwatch.com/story/feds-williams-says-inflation-target-should-be-increased-2016-08-15) than the current 2% target. The current target "is not well suited" for the new low-interest-rate era because "there is simply not enough room for central banks to cut interest rates in response to an economic downturn," Williams said.

Putting Dudley's and Williams's comments in context, it seems like "Fed officials are trying to tell the market that [a rate hike in] September might be on the table, but the market doesn't believe that," said Nick Burwell, a portfolio manager at Cabot Wealth Management.

Meanwhile, the flurry of data on Tuesday showed, according to Burwell, that "this recovery is led by jobs and housing," while inflation is lagging--a combination that falls short of the Fed's requirements for a rate hike and supports risk assets in the short term.

More Fed speakers: A fairly busy speaking week for Federal Reserve officials will kick off with Atlanta Fed President Dennis Lockhart, who is set to speak to the Rotary Club of Knoxville, Tennessee at 12:30 p.m. Eastern. The minutes of the Fed's July 27 meeting are coming Wednesday.

Stocks to watch: Dicks Sporting Goods Inc.(DKS) shares jumped 7% after the retailer beat second-quarter earnings estimates (http://www.marketwatch.com/story/dicks-sporting-goods-shares-rise-after-earnings-beat-guidance-raised-2016-08-16)and raised its full-year outlook.

TJX Cos.(TJX) shares tumbled 5.4% despite the fact that its earnings beat estimates, as its outlook for the current quarter (http://www.marketwatch.com/story/tjx-third-quarter-outlook-disappoints-stock-falls-2016-08-16)landed below expectations.

Urban Outfitters Inc.(URBN) and La-Z-Boy Inc.(LZB) are scheduled to report results after the close.

The weeks's earnings docket includes other retailers such as Target Corp.(TGT). Here's what to watch for in Target's earnings (http://www.marketwatch.com/story/what-to-watch-for-in-target-earnings-2016-08-15).

BHP Billiton Ltd.(BHP.AU) (BLT.LN) (BHP.AU) was up 1% even as the Anglo-Australian mining giant swung to its worst-ever loss of $6.39 billion (http://www.marketwatch.com/story/bhp-billiton-posts-64-bln-loss-cuts-dividend-2016-08-16) and cut its final dividend by 77%, grappling with a slump in commodity prices.

Among other quarterly changes, hedge-fund manager John Paulson shed big positions (http://www.marketwatch.com/story/john-paulson-adds-facebook-office-depot-sheds-t-mobile-allergan-2016-08-15) in T-Mobile US Inc.(TMUS) and Activision Blizzard Inc.(ATVI). But he created a new position in Facebook Inc.(FB) and doubled his stake in Office Depot Inc.(ODP)

Other markets: As the dollar pulled lower, gold pushed higher, up 0.4% to $1,352.2 an ounce.

Data showed inflation in the U.K. rose a forecast-beating 0.6% in July (http://www.marketwatch.com/story/weak-pound-after-brexit-lifts-uk-inflation-to-highest-since-2014-2016-08-16), on fallout from the Brexit vote, which made imported goods pricier in that country. Sterling rose to $1.3010 after the inflation release, up from $1.2880 late Monday in New York.

(END) Dow Jones Newswires

August 16, 2016 12:39 ET (16:39 GMT)

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