Stocks Close Modestly Lower Ahead Of Fed Announcement - U.S. Commentary

(RTTNews) - With traders reluctant to make any significant moves, stocks showed a lack of direction throughout much of the trading day on Tuesday. The choppy trading came as traders looked ahead to tomorrow's announcement of the Federal Reserve's monetary policy decision.

The major averages bounced back and forth across the unchanged line before closing modestly lower. The Dow edged down 9.31 points or 0.1 percent to 15,875.26, the Nasdaq dipped 5.84 points or 0.1 percent to 4,023.68 and the S&P 500 slipped 5.54 points or 0.3 percent to 1,781.00.

The lackluster performance on Wall Street came amid uncertainty about the outlook for the Fed's stimulus program as the central bank's two-day monetary policy meeting got underway.

Recent upbeat economic data has led some economists to predict that the Fed will announce plans to begin scaling back its asset purchases, although others still expect the central bank to put off tapering until next year.

Some selling pressure was generated by news that the bipartisan budget agreement cleared a key procedural hurdle in the Senate, setting the stage for final passage of the bill later this week.

The passage of the budget agreement should lift some of the fiscal uncertainty that the Fed has frequently cited as a hindrance to the economy.

Meanwhile, the Labor Department released a report before the start of trading showing tame consumer price inflation in the month of November.

The report showed that the consumer price index was unchanged on a monthly basis and rose at an annual rate of 1.2 percent.

While the annual growth reflects an acceleration from the 1.0 percent increase seen in October, Rob Carnell, chief international economist at ING, said inflation remains low enough for the Fed to use it as an excuse not to start the taper tomorrow.

The National Association of Home Builders also released a report showing that homebuilder confidence improved by much more than anticipated in the month of December. Sector News

While most of the major sectors ended the day showing only modest moves, considerable weakness was visible among airline stocks. Reflecting the weakness in the airline sector, the NYSE Arca Airline Index tumbled by 1.9 percent.

Latam Airlines (LFL), Delta (DAL), and JetBlue (JBLU) turned in some of the airline sector's worst performances on the day.

Biotechnology stocks also saw significant weakness, resulting in a 1.1 percent drop by the NYSE Arca Biotechnology Index. Pharmacyclics (PCYC) helped to lead the sector lower, falling by 6.9 percent.

Banking and healthcare stocks also moved to the downside on the day, while some strength was visible among semiconductor and telecom stocks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Tuesday. Japan's Nikkei 225 Index advanced by 0.8 percent, while Hong Kong's Hang Seng Index edged down by 0.2 percent.

Meanwhile, the major European markets all moved to the downside on the day. While the French CAC 40 Index tumbled by 1.2 percent, the German DAX Index slid by 0.9 percent and the U.K.'s FTSE 100 Index dropped by 0.6 percent.

In the bond market, treasuries moved moderately higher after turning lower over the course of the previous session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 3.4 basis points to 2.843 percent.

Looking Ahead

All eyes are likely to be on the Fed on Wednesday, with the announcement of the policy decision due at 2 pm ET followed by Chairman Bernanke's press conference at 2:30 pm ET.

The Fed meeting is likely to overshadow the release of the Commerce Department's report on housing starts in September, October, and November.