U.S. stocks closed mixed on Friday, with utilities lagging, as investors digested remarks made by Federal Reserve Chair Janet Yellen and Vice Chairman Stanley Fischer.
"I don't think she said anything we didn't already know, but people were trying to make something bullish out of it," said JJ Kinahan, chief strategist at TD Ameritrade. "Then Fischer said two rate hikes were possible" and stocks went lower.
The Dow Jones industrial average closed about 50 points lower after briefly falling more than 100 points. Earlier, Fischer told CNBC next week's jobs report would weigh on the Fed's rate hike decision. The Dow gained 123.68 points at session highs and traded in a range of 236.75 points.
"I think the market is starting to second guess what she said," said Daniel Deming, managing director at KKM Financial. "I think the market is trying to assess the real probability of a rate hike" in the near term.
The benchmark S&P 500 closed 0.15 percent lower, with utilities falling more than 2 percent, while the Nasdaq composite ended 0.13 percent higher.
"I think it's Fischer's comments" that dragged the market lower, said Robert Pavlik, chief market strategist at Boston Private Wealth, noting that the three major indexes were higher before Fischer spoke and began falling after he made his remarks.
Fischer spoke after Yellen, who said in a much-anticipated speech Friday at the central bank's annual Jackson Hole summit that the case for a rate hike has gained strength "in recent months."
Market expectations for a rate hike in September, the Fed's next meeting, were at 30 percent Friday afternoon, according to the CME Group's FedWatch tool.
"I think, overall, investors expect a rate hike, but they expect it later this year," said Kate Warne, investment strategist at Edward Jones. "What we saw was Yellen not changing expectations very much."
Phil Blancato, CEO of Ladenburg Thalmann Asset Management said "the reality is they don't have enough to move rates in September ... and they certainly don't want to get in front of an election."
He added, however, if the U.S. continues to add jobs at a rate of more than 200,000 per month heading to year's end, he wouldn't be surprised to see the Fed raise rates by 50 basis points in December.
U.S. stocks initially whipsawed after Yellen's speech, with the three major indexes falling to just above break-even before hitting session highs.
"I think what happens is when Janet Yellen says something like the labor market is strengthening, the market says 'sell,' and it's not until we digest the full speech that we go higher," said Adrian Day, CEO of Adrian Day Asset Management. "The want to raise rates, but they want everything to be perfect before they do so."
"There was nothing new that came out of that speech," said Chuck Self, CIO at iSectors. "We continue to believe there will be no rate hike this year," he said.
Ahead of the speech, the Dow was up about 50 points, while the S&P and the Nasdaq were up more than 0.2 percent.
"When the volume is low a few big trades can easily move the market higher or lower," said Randy Frederick, vice president of trading and derivatives at Charles Schwab.
Yellen delivered her speech against a backdrop of narrow trading and hawkish remarks from two of her top lieutenants, New York Fed President William Dudley and Fischer.
Naeem Aslam, chief market analyst at Think Markets, said in a note to clients ahead of the speech "the Fed is still data dependent and the labour market is something which they keep a very close eye on."
Dow Jones industrial average intraday chart
The three major indexes posted weekly losses, with the Nasdaq snapping an eight-week winning streak. Stocks, however, have held in a narrow range, as the S&P hasn't closed 1 percent higher or lower for 35 straight sessions.
"I think the market is very much like Janet Yellen," said Interview with Rob Bartenstein, CEO of Kestra Private Wealth Services, noting it's a market that wants to receive data before reacting. "The data has been reasonably good ... but next week we have a jobs report and that could move the markets."
Investors also digested the second read on second-quarter U.S. GDP, which showed growth of 1.1 percent, down from the initial read of 1.2 percent.
"The economy could be back to that Goldilocks economy we saw a few years ago," said Adam Sarhan, CEO at Sarhan Capital. "Yellen has all the flexibility to be dovish in September if she wants."
Other data released Friday included August consumer sentiment, which fell slightly.
U.S. Treasurys traded lower, with the two-year note yield higher at 0.84 percent and the benchmark 10-year yield at 1.62 percent.
The U.S. dollar traded in a wide range, rising more than 0.8 percent against a basket of currencies after trading lower earlier in the session.
Gold futures for December delivery settled $1.30 higher at $1,325.90 per ounce, well off session highs.
In oil markets, U.S. crude settled 0.65 percent higher at $47.64 a barrel after the Saudi energy minister subdued down expectations that the Saudi Arabia might agree next month to limit output.
The dropped 3.43 points, or 0.16 percent, to 2,169.04, with utilities leading seven sectors lower and health care the top riser.
The Nasdaq closed 6.71 points higher, or 0.13 percent, at 5,218.92.
About nine stocks declined for every five advancers at the New York Stock Exchange, with an exchange volume of 807.85 million and a composite volume of 3.279 billion at the close.