Stocks Close Modestly Higher After Seeing Initial Weakness - U.S. Commentary

(RTTNews) - After coming under pressure at the start of trading on Tuesday, stocks moved modestly higher over the course of the trading day. The gains on the day extended the moderate upward move seen in the two previous sessions.

While buying interest was somewhat subdued, the major averages all closed in positive territory. The Dow edged up 27.48 points or 0.2 percent to 16,808.49, the Nasdaq rose 16.13 points or 0.4 percent to 4,337.23 and the S&P 500 crept up 4.21 points or 0.2 percent to 1,941.99.

Traders initially reacted negatively to some troubling economic data but selling pressure waned as traders looked ahead to the Federal Reserve's monetary policy announcement Wednesday afternoon.

The Fed is widely expected to announce another $10 billion reduction in the pace of asset purchases, but traders are likely to focus more on the language of the accompanying statement and the outlook for interest rates.

Along with the statement, the Fed is due to provide an update to its economic projections and Fed Chair Janet Yellen is scheduled to hold a press conference.

Before the start of trading, the Commerce Department released a report showing that housing starts pulled back by more than expected in the month of May.

The report said housing starts fell 6.5 percent to an annual rate of 1.001 million in May after jumping 12.7 percent to a rate of 1.071 million in April. Economists had expected starts to drop to a rate of 1.030 million.

A separate report from the Labor Department showed that consumer prices rose at their fastest pace in over a year in the month of May.

The consumer price index rose by 0.4 percent in May, the biggest monthly increase since February of 2013. Economists had expected consumer prices to edge up by about 0.2 percent.

Core consumer prices, which exclude food and energy prices, increased 0.3 percent in May after rising by 0.2 percent in the previous month. Core prices had also been expected to tick up by 0.2 percent.

Traders also kept an eye on the latest developments in Iraq amid reports that Sunni insurgents continue to advance toward Baghdad.

Sector News

Brokerage stocks showed a substantial move to the upside over the course of the trading day, driving the NYSE Arca Broker/Dealer Index up by 2.5 percent. With the gain, the index ended the session at its best closing level in over two months.

E*Trade (ETFC), Charles Schwab (SCHW), and TD Ameritrade (AMTD) turned in some of the brokerage sector's best performances.

Significant strength also emerged among banking stocks, as reflected by the 1.2 percent gain posted by the Dow Jones Banks Index. Northern Trust (NTRS) and State Street (STT) posted notable gains.

Airline stocks also moved notably higher on the day, regaining some ground after pulling back sharply over the past few sessions. The NYSE Arca Airline Index advanced by 1.2 percent but remains well off its recent highs.

Electronic storage, steel, and internet stocks also saw some strength on the day, while modest weakness was visible among biotech stocks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance during trading on Tuesday. Japan's Nikkei 225 Index rose by 0.3 percent, while Hong Kong's Hang Seng Index dropped by 0.4 percent.

Meanwhile, the major European markets all moved to the upside on the day. While the U.K.'s FTSE 100 Index edged up by 0.2 percent, the German DAX Index and the French CAC 40 Index rose by 0.4 percent and 0.6 percent, respectively.

In the bond market, treasuries saw considerable weakness amid concerns about the outlook for inflation. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 5.8 basis points to 2.655 percent.

Looking Ahead

While the Fed will be in the spotlight on Wednesday, trading activity may be somewhat subdued in the lead up to the monetary policy announcement at 2 pm ET.