What goes up must come down and after 7 consecutive record highs the Dow finally came straight down today to the tune of 53 points.  It is a pattern that has repeated often – investors just can’t seem to decide whether they want a full recovery or not.  We need rate hikes and normal inflation to get back to normal.  This has been the Fed’s position all along.  Yesterday applauded for getting on the path to normalization, today not quite so comfortable since rising rates also means less ease of borrowing and less equity.  Did anyone really believe rates should remain near zero forever? 

Still, the financial stocks did well, in fact the only two of the 11 S&P sectors that saw gains.  The odds of a December hike have been raised to 70 percent vs yesterday’s 67.  Yellen has opined that our low inflation “remains a mystery.”  Really?  I can explain it to her.  Energy, the major driving force behind the CPI, has been down because the oil companies are pumping way more crude than we can use and can’t seem to figure out how to slow it down.  No matter.  The VIX has fallen to 9.67, the lowest in two months.  The market does not seem at all worried.  Volume was back to below average at 5.5 billion. 

thu  SEPTEMBER 21, 2017 / 5:31 pM

Wall Street pushed down by rate expectations, North Korea, Apple

Sinead Carew

DJ: 22,359.23  -53.36     NAS: 6,422.69  -33.35      S&P: 2,500.60  -7.64       9/21

(Reuters) - U.S. stock indexes slipped on Thursday as investors braced for a third interest rate hike this year and the United States ordered new sanctions against North Korea.  The S&P and the Dow snapped a run of record closing highs and Apple (AAPL.O) was the biggest drag on the three major indexes with a 1.7 percent drop on worries about demand for its latest smartphone.  

Investors increased bets the U.S. Federal Reserve would raise rates again this year after the central bank’s statement on Wednesday and were also assessing its decision to start reducing its roughly $4.2 trillion in U.S. Treasury bonds and mortgage-backed securities.

U.S. President Donald Trump opened the door to blacklisting people and entities doing business with North Korea, further tightening the screws on Pyongyang’s nuclear and missile programs.

“The Fed had investors on edge already. Ratcheting up of North Korea tensions can put investors in a little more of a risk-off mode,” said Chris Zaccarelli, chief investment officer at Cornerstone Financial Partners, in Huntersville, NC.

However, with the CBOE Volatility Index .VIX closing at its lowest level in nearly two months at 9.67, Peter Cecchini, chief market strategist at Cantor Fitzgerald in New York, said the market is not reflecting risks such as U.S.-North Korea tensions and high valuations.

The market is “very complacent and very comfortable in its own skin right now and not really concerned about risk much at all,” said Cecchini: “I‘m worried about that.”

The Dow Jones Industrial Average .DJI fell 53.36 points, or 0.24 percent, to 22,359.23, the S&P 500 .SPX lost 7.64 points, or 0.30 percent, to 2,500.6 and the Nasdaq Composite .IXIC dropped 33.35 points, or 0.52 percent, to 6,422.69. 

Fed Chair Janet Yellen said the fall in inflation this year remained a mystery, adding that the central bank was ready to change the interest rate outlook if needed.

Investors were pricing in about a 70 percent chance of a December hike, according to CME’s FedWatch tool, up from about 51 percent just prior to the Fed statement.

Only two of the 11 major S&P sectors - financials .SPSY and industrials .SPLRCI - were higher, with gains of 0.2 percent and 0.3 percent. The consumer staples index .SPLRCS was the biggest decliner, down 0.97 percent drop.

Financial stocks have been on a tear in recent days as investors anticipated and then reacted to Fed commentary on rate hikes, which tend to help bank profits.

The S&P has risen about 11.7 percent so far this year, helped by strong corporate profits and lingering optimism among some investors that Trump will cut taxes for businesses.

This has boosted valuations. The S&P is trading at roughly 17.6 times expected earnings, well above its 10-year average of 14.3, according to Thomson Reuters Datastream.

 “It’s very hard for me to see a tremendous catalyst for the upside, although I also don’t see that massive catalyst to create a crack to the downside,” said Cantor’s Cecchini.

Declining issues outnumbered advancing ones on the NYSE by a 1.35-to-1 ratio; on Nasdaq, a 1.24-to-1 ratio favored decliners.

About 5.54 billion shares changed hands on U.S. exchanges compared with the 6.03 billion average for the last 20 sessions.