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Nasdaq Finishes Choppy Trading Day At Record Closing High - U.S. Commentary


Stocks showed a lack of direction over the course of the trading session on Tuesday, with the major averages bouncing back and forth across the unchanged line. Despite the choppy trading, the tech-heavy Nasdaq reached a new record closing high.

The major averages eventually ended the session mixed. While the Dow edged down 1.58 points or less than a tenth of a percent to 25,320.73, the Nasdaq climbed 43.87 points or 0.6 percent to 7,703.79 and the S&P 500 rose 4.85 points or 0.2 percent to 2,786.85.

The lackluster performance on Wall Street came as traders looked ahead to monetary policy announcements by the Federal Reserve and the European Central Bank.

The Fed is widely expected to raise interest rates by 25 basis points on Wednesday, while the ECB has indicated it will discuss ending its bond purchasing program at its meeting on Thursday.

Ahead of the Fed meeting, the Labor Department released a report showing another modest increase in consumer prices in the month of May.

The Labor Department said its consumer price index rose by 0.2 percent in May, matching the increase seen in April as well as economist estimates.

Excluding food and energy prices, core consumer prices still increased by 0.2 percent in May after inching up by 0.1 percent in April. The core price growth also matched expectations.

The annual rate of consumer price growth accelerated to 2.8 percent in May from 2.5 percent in April, reaching its highest level since February of 2012.

Core consumer price growth also edged up to a fifteen-year high of 2.2 percent in May from 2.1 percent in the previous month.

Michael Pearce, Senior U.S. Economist at Capital Economics, said the consumer price growth will keep the Federal Reserve on course to raise interest rates on Wednesday.

"We expect underlying inflation to trend gradually higher from here, which will prompt the Fed to hike rates twice in the second half of the year," Pearce said.

Meanwhile, traders largely shrugged off the historic summit between President Donald Trump and North Korean leader Kim Jong Un.

Following the meeting, Trump and Kim signed a joint statement pledging to work together to "build a lasting and stable peace regime on the Korean Peninsula."

The statement said Kim reaffirmed his firm and unwavering commitment to complete denuclearization of the Korean Peninsula, while Trump committed to provide security guarantees to North Korea.

The U.S. and North Korea also committed to hold follow-on negotiations led by the Secretary of State Mike Pompeo and a relevant high-level North Korean official.

Sector News

Most of the major sectors ended the day showing only modest moves, contributing to the lackluster close by the broader markets.

Utilities stocks saw considerable strength, however, with the Dow Jones Utilities Average climbing by 1.3 percent. The average bounced off its lowest closing level in four months.

Notable strength also emerged among biotechnology stocks, as reflected by the 1.1 percent gain posted by the NYSE Arca Biotechnology Index. With the gain, the index reached its best closing level in over four months.

On the other hand, oil stocks came under pressure on the day, dragging the NYSE Arca Oil Index down by 1.3 percent. The weakness in the sector came despite a modest increase by the price of crude oil.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Tuesday. Japan's Nikkei 225 Index rose by 0.3 percent, while Hong Kong's Hang Seng Index crept up by 0.1 percent.

Meanwhile, the major European markets moved to the downside on the day. While the German DAX Index closed just below the unchanged line, the French CAC 40 Index and the U.K.'s FTSE 100 Index both fell by 0.4 percent.

In the bond market, treasuries recovered after seeing initial weakness to end the day roughly flat. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, ended the day unchanged at 2.957 percent.

Looking Ahead

While the Fed is widely expected to raise interest rates, trading on Wednesday may be impacted by reaction to the accompanying statement.

The announcement from the Fed is likely to overshadow the Labor Department's report on producer prices in the month of May.

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