Stocks declined Tuesday after a three-day bull run as investors kept searching for clues about when the Federal Reserve would taper its stimulus program. The trading day lacked action and there were hardly any economic data to guide the benchmarks. In fact, the approval of the Volcker Rule also had no role to play in changing investor sentiment. Materials sector was the biggest gainer among the S&P 500 industry groups while utilities lost the most.
For a look at the issues currently facing the markets, make sure to read today’s Ahead of Wall Street article
The Dow Jones Industrial Average (DJI) lost 0.3% to close the day at 15,973.13. The S&P 500 declined 0.3% to finish yesterday’s trading session at 1802.62. The tech-laden Nasdaq Composite Index decreased 0.2% to end at 4060.49. The fear-gauge CBOE Volatility Index (VIX) rose 3.1% to settle at 13.91. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 5.4 billion shares. Declining stocks outnumbered the advancers. For 59% shares that declined, only 38% advanced.
Market watchers are looking forward to the Federal Reserve’s next Federal Open Market Committee (FOMC) meeting that is scheduled for 17th and 18th December. Market watchers had previously anticipated that the Federal Reserve would begin tapering its stimulus program in March. Such expectations were strengthened following earlier announcements that it would reduce its bond purchases only when certain economic indicators were at desired levels. This included a significant decline in the unemployment rate. The nonfarm payrolls report supports expectations that the economy has recovered to the point where it can withstand reductions in Fed bond purchases.
Previously, some Federal Reserve officials had hinted that the Fed may taper its stimulus program sooner rather than later. A chain of favorable economic reports published of late suggests that the economy is gaining strength. The stimulus program has played a major role in the equities’ bull run and markets remain apprehensive about Fed action on this front.
The Fed has often stated that the taper decision centers on whether economic indicators are strong enough. Richard Fisher, President of Federal Reserve Bank of Dallas, in his remarks prepared for his speech at the DTN/The Progressive Farmer Ag Summit in Chicago has said: “It is time to taper”. He said that the cost of the stimulus program “far exceeds” its advantages, he suggested easing it “at the earliest opportunity” and communicating a transparent method along with a defined date to end the $85 billion bond purchase program.
Also, the President of St. Louis Federal Reserve Bank, James Bullard unexpectedly said this would be the right time for a “small taper”. He joined Fed Presidents Richard Fisher and Jeffrey Lacker in supporting a move to begin reducing the central bank’s stimulus program on Monday.
The U.S. Commodity Futures Trading Commission adopted the Volcker rule yesterday. The Volcker Rule prohibits banks from trading purely for their profits. The Federal Deposit Insurance Corporation, the Securities and Exchange Commission along with other federal agencies voted for the Volcker rule. The Volcker Rule will be effective from July 2015 for all banks across the nation.
U.S. crude prices increased 1.2% to $98.51 per barrel on Tuesday. This was a result of market participants reacting to advancement in the construction of a major pipeline meant to transport crude oil from the U.S. Midwest to the Gulf.
The U.S. Department of Commerce said total wholesale inventories improved by 1.4% from September to $514.1 billion in October. This compared favorably with the consensus estimate of 0.3% growth. Sales of merchant wholesalers, excluding manufacturers’ sales branches and offices, after seasonal variations adjustments increased 1.0% to $435.3 billion.
The materials sector was the biggest gainer among the S&P 500 industry groups on Tuesday. The Materials SPDR (XLB) gained 0.3%. Stocks such as Monsanto Company (NYSE:MON), The Dow Chemical Company (NYSE:DOW), Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), PPG Industries, Inc. (NYSE:PPG), and E I Du Pont De Nemours And Co (NYSE:DD) increased 0.1%, 2.4%, 0.8%, 0.3% and 0.1%, respectively.
The utilities sector was the biggest loser among the S&P 500 industry groups on Tuesday. The Utilities SPDR (XLU) lost 1.0%. Stocks such as Duke Energy Corp (NYSE:DUK), Dominion Resources, Inc. (NYSE:D), The Southern Company (NYSE:SO), NextEra Energy, Inc. (NYSE:NEE), and Exelon Corporation (NYSE:EXC) decreased 0.8%, 0.4%, 1.4%, 1.5%, and 1.0%, respectively.