[Chart courtesy of MarketWatch.com]
Amid a benign read on consumer price inflation and a report that showed homebuilder sentiment remains near an eight-year high, U.S. equities advanced on Tuesday on expectations the Federal Reserve will make only moderate changes to its stimulus at the conclusion of its two-day meeting.
There wasn’t a whole lot of trading action as volume was light. Meanwhile, Treasuries saw modest gains ahead of the Fed’s decision and following the data. In equity news, Dow member Microsoft announced a 22% dividend increase and a new $40 billion share repurchase program.
The S&P 500 closed above the key resistance level of 1,700 for the first to since August and is 0.3 percent below its record high of 1,709.67. It is only fitting perhaps that the S&P 500 sits on the cusp of a new all-time high just as the Fed is presumably on the cusp of cutting back on its asset purchases.
A decision on Wednesday to cut back on its asset purchases will provide a good signpost in the future for determining just how well the stock market and the economy were able to handle a Fed tapering. It appears that investors are looking for a less than $10 billion trim down on stimulus policy; and as long as the taper is not bigger than that investors are expecting the market to react positively.
Today, it was pretty much steady as she goes. Bolstered by the news from Microsoft, the tech sector (+0.6%) was a pillar of support throughout todays trading. Industrials (+0.6%), consumer discretionary (+0.6%), and utilities (+0.6%) sectors also fared well.
In fact, every sector, with the exception of the basic materials sector (-0.3%), which was pressured by a weak showing from the paper and packaging stocks, ended the day higher. Commodities were pretty much weak across the board. Their weakness was considered by some to be a harbinger of a Fed tapering announcement since it is presumed that tapering will help keep inflation pressures at bay. On that note, the Consumer Price Index (CPI) for August didn’t reveal any worrisome inflation signals.
It showed prices at the consumer level were up 0.1% m/m in August, below the 0.2% increase forecasted. On a y/y basis, consumer prices were 1.5% higher, south of forecasts of a 1.6% gain.
On the housing front, the National Association of Home Builders Housing Market Index, a gauge of homebuilder sentiment, remained at August’s downwardly revised 58 for September, matching economists’ forecasts, with a reading above 50 suggesting that more homebuilders consider the housing market good.
Trend wise, the picture was mixed as the Domestic Trend Tracking Index (TTI) headed higher to close at +2.94%, while the International TTI dropped slightly to +6.87%.