Benchmarks ended in negative territory on Tuesday, as investors cautiously awaited the outcome of the Federal Open Market Committee meeting to gain further insights into the Fed’s next move. The two-day policy meet is expected to decide on the future of the Fed’s stimulus measures. The two-year budget deal also sailed through a test vote in the Senate, indicating that it may receive final approval later this week. The materials sector was the only gainer among the S&P 500 industry groups while financials incurred maximum loses.
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The Dow Jones Industrial Average (DJI) lost about 0.1% to close the day at 15,875.26. The S&P 500 declined 0.3% to finish yesterday’s trading session at 1,781. The tech-laden Nasdaq Composite Index decreased 0.7% to end at 4,023.68. The fear-gauge CBOE Volatility Index (VIX) rose 1.1% to settle at 16.21. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 5.9 billion shares. Declining stocks outnumbered the advancers. For 52% shares that declined, only 44% advanced.
The two-day policy meeting of the FOMC started yesterday. Some market watchers are of the view that the Fed will indicate when it will begin tapering its stimulus program at the end of this meeting. Upbeat November nonfarm payrolls data, followed by last Tuesday’s bipartisan budget deal in Washington increased investor expectations that this will occur soon.
Meanwhile, a two-year budget deal cleared a Senate procedural vote yesterday. This indicated that the proposal will be passed by a simple majority in the Democratic-controlled chamber later in the week. Coming to voting numbers, the Senate voted in favor of limiting debate and passing the measure by 67 votes against 33. The results also exceeded the minimum requirement of 60 votes. The results also clearly negated Republican objections to higher short-term government spending.
Twelve of the Republicans joined fifty-three Democrats along with two independents in support of the tentative two-year budget deal. The deal is expected to make an automatic spending cut of $60 billion and reduce deficit by as much as $23 billion. The agreement aims at avoiding another government shutdown over October 1, 2015, and also promises to end three years of political conflicts and fiscal instability in Washington.
Soon after the Senate voting, prominent Senate Republican Mitch McConnell indicated that signs of a debt limit battle were imminent. He said: “I doubt if the House or for that matter the Senate is willing to give the president a clean debt ceiling increase”. Senate Majority Leader Harry Reid said he “can’t imagine” that Republicans would clash once again over the debt ceiling following the tedious struggle on the same issue which resulted in a sixteen-day government shutdown.
According to the U.S. Department of Labor, the Consumer Price Index (CPI) for the month of November remained unchanged. This was in contrast to the consensus estimate of 0.1% increase. The all items index rose 1.2% in the last twelve months. The index for all items less food and energy increased 0.2%, higher than the 1.0% increase over the twelve months till October. The food index rose 1.2% over the past twelve months, while energy declined 2.4%.
The materials sector was the only gainer among the S&P 500 industry groups. The Materials SPDR (XLB) gained 0.7%. Stocks such as Monsanto Company (NYSE:MON), E I Du Pont De Nemours And Co (NYSE:DD), The Dow Chemical Company (NYSE:DOW), Praxair, Inc. (NYSE:PX), and Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) gained 1.3%, 0.6%, 1.4%, 0.2%, and 0.9%, respectively.
The financials sector incurred maximum loses among the S&P 500 industry groups. The Financials SPDR (XLF) lost 0.7%. Stocks such as Wells Fargo & Co (NYSE:WFC), JPMorgan Chase & Co. (NYSE:JPM), Berkshire Hathaway Inc. (NYSE:BRK.B), Bank of America Corp (NYSE:BAC), and Citigroup Inc. (NYSE:C) decreased 0.9%, 1.2%, 0.3%, 0.4%, and 0.4%, respectively.