Stocks Finish Choppy Trading Day Roughly Flat - U.S. Commentary

(RTTNews) - After trending higher over the past two weeks, stocks turned in a lackluster performance during trading on Wednesday. Lingering uncertainty about the outlook for the Federal Reserve's stimulus program contributed to the choppy trading on Wall Street.

The Dow and the S&P 500 finished the day nearly unchanged. While the Dow edged down 8.68 points or 0.1 percent to 15,291.66, the S&P 500 inched up 0.30 points or less than a tenth of a percent to 1,652.62.

Meanwhile, the tech-heavy Nasdaq closed firmly in positive territory, climbing 16.50 points or 0.5 percent to 3,520.76. With the gain, the index extended its recent upward move and reached its best closing level since October of 2000.

Stocks showed a lack of direction for much of the session before seeing considerable volatility following the release of the minutes of the Federal Reserve's latest monetary policy meeting.

The minutes appeared to confirm that the central bank is moving closer to tapering its asset purchase program, although the timing remains unclear.

While many members said further improvement in the outlook for the labor market would be required before it would be appropriate to slow the pace of asset purchases, several others said a reduction in asset purchases would likely soon be warranted.

However, the members agreed that monetary policy in the coming quarters would depend on the evolution of the economic outlook and progress toward the Fed's longer-run objectives of maximum employment and inflation of 2 percent.

Paul Dales, Senior U.S. Economist at Capital Economics, said the minutes support the view that the Fed will probably start to taper its asset purchases in September.

While Dales said there is a chance that the Fed will start to taper in July because of the strength of June's jobs reports, he noted that some members want to see more evidence of the pick-up in economic growth they expect.

"Given that the initial estimate of second-quarter annualized GDP growth, which we think will be as weak as 1.0%, will be released just hours before the Fed's decision on the 31st July, the Fed is likely to hold off until September," Dales said.

Nonetheless, reflecting the uncertainty about the outlook for the Fed's stimulus program, Paul Edelstein, U.S. economist for IHS Global Insight, said the minutes are consistent with the view that the Fed is more likely to defer tapering until 2014.

Traders largely shrugged off a report from the Commerce Department showing an unexpected drop in wholesale inventories in May. The report also showed a notable increase in wholesale sales.

Sector News

Most of the major sectors ended the day showing only modest moves, contributing to the lack of direction shown by the broader markets.

Biotechnology stocks saw considerable strength, however, with the NYSE Arca Biotechnology Index advancing by 1.3 percent to a record closing high. Alexion (ALXN) and Amgen (AMGN) turned in two of the sector's best performances.

Significant strength was also visible among semiconductor stocks, as reflected by the 1.1 percent gain posted by the Philadelphia Semiconductor Index.

The strength among biotech and semiconductor stocks likely contributed to the notably higher close by the tech-heavy Nasdaq.

Meanwhile, railroad stocks came under pressure on the day, dragging the Dow Jones Railroads Index down by 1.1 percent. Greenbrier (GBX) helped lead the sector lower, falling by 3.9 percent.

Banking stocks also gave back some ground following recent strength, with the KBW Bank Index dipping by 1 percent after ending the previous session at its best closing level in nearly five years.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Wednesday. While Japan's Nikkei 225 Index fell by 0.4 percent, Hong Kong's Hang Seng Index surged up by 1.1 percent.

Meanwhile, the major European markets all saw modest weakness on the day. The U.K.'s FTSE 100 Index, the French CAC 40 Index and the German DAX Index all edged down by 0.1 percent.

In the bond market, treasuries closed firmly in the red in reaction to the minutes of the latest Fed meeting. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 5 basis points to 2.68 percent.

Looking Ahead

Fed Chairman Ben Bernanke is due to deliver a speech on the history of Fed policy after the close of today's trading, but it is unclear whether he will address the current debate over the central bank's stimulus program.

While any significant comments from Bernanke could impact trading on Thursday, traders are also likely to keep an eye on the release of a pair of Labor Department reports on weekly jobless claims and import and export prices.