Stocks moved modestly higher during trading on Wednesday but largely ended the session well off their best levels of the day. The markets benefited from a positive reaction to the latest news out of Europe, but buying interest was subdued ahead of a closely watched announcement from the Federal Reserve.
The major averages all ended the day in positive territory for the second straight session. The Dow inched up 9.99 points or 0.1 percent to 13,333.35, the Nasdaq rose 9.78 points or 0.3 percent to 3,114.31 and the S&P 500 edged up 3.00 points or 0.2 percent to 1,436.56.
The modest strength on Wall Street was partly due to news that Germany's Federal Constitutional Court cleared the way for the ratification of the European Stability Mechanism, rejecting temporary injunctions against the European bailout fund.
At the same time, the court imposed certain conditions, including capping Germany's liability. The court said Germany must cap its bailout fund liability at 190 billion euros and said further expansion of the country's share needs to get the backing of Parliament.
Peter Boockvar, managing director at Miller Tabak, said, "Buy the rumor, buy the news continues to be the market pattern as long as participants have their central bank beer goggles on which turns all news into good news."
However, continued uncertainty about further stimulus from the Federal Reserve helped to limit the upside for the markets, with the central bank due to announce its latest monetary policy decision on Thursday.
While many analysts expect the Fed to announce a third round of quantitative easing, traders seemed reluctant to make any significant moves ahead of the actual announcement.
Traders largely shrugged off a Labor Department report showing that U.S. import prices rose by less than expected in August despite a notable rebound by fuel prices.
The report also showed that U.S. export prices increased by more than expected during the month amid another notable increase in prices for agricultural exports.
A separate report from the Commerce Department showed that wholesale inventories rebounded by more than expected in the month of July.
While most of the major sectors ended the day showing only modest moves, significant strength was visible among housing stocks. Reflecting the strength in the housing sector, the Philadelphia Housing Sector Index surged up by 3.1 percent to its best closing level in well over four years.
PulteGroup (PHM: Quote) and Lennar (LEN: Quote) turned in two of the housing sector's best performances, advancing by 6 percent and 4.4 percent, respectively.
Networking stocks also saw considerable strength on the day, with the NYSE Arca Networking Index rising by 2 percent. Juniper Networks (JNPR: Quote) and Alcatel-Lucent (ALU: Quote) posted standout gains.
Airline, brokerage, and natural gas stocks also saw notable strength, although buying interest was relatively subdued.
On the other hand, health insurance stocks came under pressure on the day, dragging the Morgan Stanley Healthcare Payor Index down by 1.5 percent. Centene (CNC: Quote) helped to lead the sector lower, tumbling by 7 percent.
In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan's Nikkei 225 Index surged up by 1.7 percent, while Hong Kong's Hang Seng Index advanced by 1.1 percent.
Meanwhile, the major European markets turned in another mixed performance on the day. While the U.K.'s FTSE 100 Index edged down by 0.2 percent, the French CAC 40 Index inched up by 0.2 percent and the German DAX Index rose by 0.5 percent.
In the bond market, treasuries saw notable weakness as some traders looked to get out of the market ahead of the Fed announcement. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 7 basis points to 1.765 percent.
All eyes are likely to be on the Federal Reserve on Thursday, with the central bank due to announce its monetary policy decision at about 12:30 pm ET followed by a press conference by Fed Chairman Ben Bernanke beginning at about 2:15 pm ET.
Reports on jobless claims and producer prices are due to be released ahead of the Fed announcement but are not likely to attract much attention.
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by RTT Staff Writer
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