Stocks Move Back To The Upside Following Recent Pullback - U.S. Commentary

(RTTNews) - After moving notably higher in early trading on Tuesday, stocks continued to perform well throughout much of the session. While buying interest waned, the major averages managed to remain firmly in positive territory.

The major averages continued to move roughly sideways going into the close. The Dow ended the day up 105.84 points or 0.6 percent at 16,530.94, the Nasdaq jumped 39.50 points or 1 percent to 4,153.18 and the S&P 500 climbed 11.11 points or 0.6 percent to 1,837.88.

The early strength on Wall Street was partly due to bargain hunting following the pullback seen over the first few trading days of the New Year, with the Nasdaq and the S&P 500 rebounding after closing lower for three consecutive sessions.

Buying interest was also generated by the release of a report from the Commerce Department showing that the U.S. trade deficit narrowed by much more than anticipated in the month of November.

The report showed that the trade deficit narrowed to $34.3 billion in November from a revised $39.3 billion in October. Economists had expected the trade deficit to shrink to $39.9 billion from the $40.6 billion originally reported for the previous month.

With the bigger than expected decrease, the trade deficit was the smallest since the $33.9 billion deficit recorded in October of 2009.

James Knightley, senior economist at ING, said, "Much of the narrowing in the deficit was due to petroleum, but even excluding this factor the deficit narrowed."

"As such, this is an encouraging sign for 4Q GDP growth - note that inventory building has been a big GDP growth contributor in recent quarters and this is expected to reverse, but falling imports should offset this to some extent," he added.

The markets may also have been benefited from remarks by Boston Federal Reserve President Eric Rosengren, who said the Fed should gradually scale back its asset purchases.

Rosengren argued that very gradual normalization would be appropriate given that the unemployment rate remains unusually high and the inflation rate remains unusually low.

The Boston Fed President voted against the Fed's decision to begin scaling back its stimulus at the December meeting but is not a voting member of the Federal Open Market Committee this year.

Sector News

While most of the major sectors moved to the upside, computer hardware stocks posted particularly strong gains on the day. The NYSE Arca Computer Hardware Index surged up by 3.2 percent, reaching a new record closing high.

Logitech (LOGI), Seagate Technology (STX), and Western Digital (WDC) turned in some of the hardware sector's best performances.

Considerable strength was also visible among biotechnology stocks, as reflected by the 1.8 percent gain posted by the NYSE Arca Biotechnology Index. Pharmacyclics (PCYC) helped lead the sector higher on positive drug trial news.

Healthcare stocks also saw significant strength, resulting in a 1.1 percent gain by the Dow Jones Health Care Index. With the gain, the index reached a record closing high.

Networking, software, and oil stocks also moved notably higher on the day, benefiting from broad based buying interest on Wall Street.

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 fell by 0.6 percent, while Hong Kong's Hang Seng Index inched up by 0.1 percent.

Meanwhile, the major European markets all moved to the upside. While the U.K.'s FTSE 100 Index rose by 0.4 percent, the French CAC 40 Index and the German DAX Index both advanced by 0.8 percent.

In the bond market, treasuries saw modest strength on the day, extending the upward move seen in the previous session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 2.4 basis points to 2.937 percent.

Looking Ahead

Payroll processor ADP's report on private sector employment is likely to be in focus on Wednesday along with the minutes of the Federal Reserve's December meeting.