On Friday, the Dow Jones closed lower as Yellen’s speech at Jackson Hole caused markets to take profit. A lot of the strain on the Dow had to do with the fact that the Fed hinted at a possible rate hike before the end of the year. With this in mind, the risk trade was off. Stocks were selling off, and the Dow Jones closed lower by 0.29% to 18,395.40. Oil was not able to sustain any meaningful type of gains, because of the Jackson Hole speech. In addition, the Saudi energy minister cited that it may not be possible for the largest oil producers to agree to an oil deal. That is to limit the production of oil, in hopes of sprucing up the price.

One Major Speech

What really drove the Dow Jones lower was Janet Yellen’s speech at Jackson Hole. All eyes were on the Fed to see if it would move to raise rates this year. The last time the Fed raised rates was back in December of 2015. Janet Yellen noted some discrepancies in the U.S. economy, but cited that the case for raising rates in the coming months has strengthened greatly. There are a few data points that indicate a stronger economy such as the labor market which has been growing steadily. The Labor Department in July stated that the U.S. added 255,000 jobs in July. Far greater than what the forecasts were expecting. In addition, the unemployment rates remained at 4.9%. What does the employment number mean to the Fed? It is a very important metric that the Fed looks at to dictate its next move with respect to hiking rates. Which is why this coming week is very important. This coming week the government will release August employment figures. There is an expectation that the U.S. will add 189,000 jobs. If this number can be breached that will more than likely give leeway for the Fed to have a good reason to be able to hike interest rates. If not, then the possibility of a rate hike will probably be off the table for quite some time. The reason for this is the statement that came from Fed Vice Chairman Stanley Fischer. He stated that the August Jobs report would be an important indicator for determining if a rate hike would still be on the table.

Strain On Oil

U.S. oil was pressured on Friday, but managed to eek out a slight gain higher by 0.65% to $47.64 a barrel. What could have probably capped gains in oil was Yellen’s speech. The Fed indicated a tone to where there is a great chance for a rate hike before the end of the year. This kind of talk from the Fed spooks the market, especially oil traders. The reason for this all has to do with the dollar. When the Fed raises interest rates it gives rise to the U.S. dollar. This in turn makes commodities, which are denominated in terms of the dollar, to trade lower. The bullishness in Yellen’s speech more than likely impeded any gains in oil. That is not the only thing to put a strain on the oil trade. There is a low expectation that next month’smeeting of OPEC member and Non–OPEC members will result in an oil freeze deal. The deal needs to be done in order to either stabilize or increase the price of oil. That is because oil trades based on supply and demand. If the supply of oil decreases that would allow the price to rise.

Trading The Dow

The Dow should continue to feel the pain of a potential rate hike. Stocks should continue to sell off until there is more clarity from the Fed. What could change momentum won’t come until Friday, when the government is expected to release the jobs number for the month of August. There will be a host of other data throughout the week, but as mentioned by Stanley Fischer the Fed is really interested in tracking the jobs report. The Dow Future is already pointing to a lower open by 8 points or 0.04%. With no clarity from the Fed the Dow should trade in its current range for the time being.