Uncertainty About The Fed Pulls Stocks Mostly Lower - U.S. Commentary

(RTTNews) - After initially showing a lack of direction, stocks moved mostly lower over the course of the trading day on Monday. Uncertainty ahead of this week's Federal Reserve monetary policy meeting contributed to the weakness in the markets.

The major averages ended the day in negative territory but well off their lows for the session. The Dow dipped 36.86 points or 0.2 percent to 15,521.97, the Nasdaq slid 14.02 points or 0.4 percent to 3,599.14 and the S&P 500 fell 6.32 points or 0.4 percent to 1,685.33.

The moderate weakness that emerged on Wall Street came as traders looked ahead to some key events later this week.

Traders are particularly focused on the outcome of the Federal Reserve's two-day monetary policy meeting that begins on Tuesday.

The Fed is not widely expected to announce plans to taper its asset purchase program when it releases its statement on Wednesday, but traders will be looking for any signals regarding the September meeting.

Along with the Fed meeting, traders will also be keeping a close eye on the monthly jobs report as well as the initial report on second quarter GDP.

A report from the National Association of Realtors showing a modest drop in pending home sales also generated some negative sentiment.

NAR said its pending home sales index edged down 0.4 percent to 110.9 in June from a six-year high of 111.3 in May. Economists had been expecting the index to drop by about 1.4 percent.

A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

Despite the pullback by the broader markets, shares of Elan (ELN) saw significant strength after the drug maker agreed to be acquired by Perrigo (PRGO) for $8.6 billion in cash and stock.

Luxury retailer Saks (SKS) also moved higher after agreeing to be acquired by Hudson's Bay in a $2.4 billion, all-cash deal.

Sector News

Airline stocks showed a significant move to the downside over the course of the session, dragging the NYSE Arca Airline Index down by 1.8 percent. The loss by the index came after it ended the previous session at a six-year closing high.

Alaska Air (ALK) and United Continental (UAL) turned in two of the airline sector's worst performances, falling by 4.8 percent and 3.9 percent, respectively.

Considerable weakness was also visible among biotechnology stocks, as reflected by the 1.4 percent loss posted by the NYSE Arca Biotechnology Index. Sequenom (SQNM) helped to lead the biotech sector lower, tumbling by 5 percent.

Gold, natural gas, and oil service stocks also came under pressure on the day, moving lower along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Monday. Japan's Nikkei 225 Index tumbled by 3.3 percent, while Hong Kong's Hang Seng Index ended the day down by 0.5 percent.

Meanwhile, the major European markets saw modest strength on the day. While the French CAC 40 Index closed just above the unchanged line, the U.K.'s FTSE 100 Index and the German DAX Index edged up by 0.1 percent and 0.2 percent respectively.

In the bond market, treasuries moved to the downside as traders looked ahead to the Fed's monetary policy announcement. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.4 basis points to 2.585 percent.

Looking Ahead

Trading activity on Tuesday is likely to remain somewhat subdued as the Fed's two-day monetary policy meeting gets underway. Nonetheless, trading could be impacted by the release of a pair of reports on home prices and consumer confidence.