[Chart courtesy of MarketWatch.com]
Buyers came into the market today as the bulls maintain the Fed still has lingering concerns about the economy and won’t say anything to rattle the market when its two-day meeting concludes on Wednesday.
However, stocks were rattled by a Financial Times story suggesting that Fed Chairman Bernanke is likely to signal the Fed is close to tapering down its $85 billion-a-month in bond purchases. The Dow Jones Industrial Average closed 110 points (0.7%) higher at 15,180, the Standard & Poor’s 500 Index rose 12 points (0.8%) to 1,639, and the Nasdaq Composite added 29 points (0.8%) to 3,452.
Although the story did not contain any new revelations, the mere mention of tapering knocked equities off their highs. Today’s paring accelerated after a British official said the Group of Eight leaders (G-8) see downside risks to the global economy abating even as growth prospects remain weak.
Nine of 10 industries in the S&P 500 advanced. The energy sector rose 1.3% even as crude oil ended the session unchanged. The tech space ended higher by 1.1% amid broad strength. Financials were briefly victimized by the Financial Times headline before regaining most of their losses into the close. The sector ended higher by 1.0%. Meanwhile, the industrial sector underperformed amid weakness in transportation-related names. On the downside, the telecom services sector shed 0.6% after a daylong slide from highs to lows.
Today’s economic data showed manufacturing activity in the New York region surprised to the upside. The Empire Manufacturing Index reported that activity expanded at a greater-than-expected level for June, increasing to 7.83 from -1.43 in April. The consensus estimate of economists called for a slight acceleration to 0.08. Elsewhere, the NAHB Housing Market Index surged eight points in June, the most since September 2002, to 52, the highest level since March 2006. Builder confidence has been trending up for the past two years, and currently indicates more builders view housing market conditions positively than negatively. An important driver was low inventory of existing homes which pushed more buyers toward new homes.
The European equity markets moved nicely higher, rebounding from their longest streak of weekly losses in over a year. Stocks in Asia finished mostly to the upside ahead tomorrow’s kickoff of the Fed’s two-day policy meeting. Investors are anxious to find out where the Fed stands on winding down the stimulus, with some investors and analysts believing there will be no changes this week. And concluding tomorrow is the two day summit of the Group of Eight leaders. Any headlines coming out of the meetings can drive the market dramatically.
Our Trend Tracking Indexes (TTIs) headed higher and closed with the Domestic TTI at +2.90% and the International TTI at +5.92%.