Stocks showed a strong upward move over the course of the trading day on Tuesday, adding to the gains posted in the previous session. The rally came even as traders expressed some uncertainty ahead of tomorrow's Federal Reserve announcement.
The major averages gave back some ground going into the close but remained firmly in positive territory. The Dow surged up 138.38 points or 0.9 percent to 15,318.18, the Nasdaq advanced 30.05 points or 0.9 percent to 3,482.18 and the S&P 500 climbed 12.77 points or 0.8 percent to 1,651.81.
The strength on Wall Street may have been in reaction to a report from the Commerce Department showing a notable rebound by housing starts in the month of May.
The report said housing starts climbed 6.8 percent to a seasonally adjusted annual rate of 914,000 in May from the revised April estimate of 856,000. The increase in housing starts came following a 14.8 percent drop in the previous month.
However, economists had been expecting housing starts to surge up to an annual rate of 955,000 compared to the 853,000 originally reported for April.
With starts coming in well below estimates despite the increase, the report may have been seen as the type of lukewarm data that is positive for the economy but won't lead the Fed to scale back its stimulus program in the near future.
Chris Low, chief economist at FTN Financial, said, "Given the importance of housing to the Fed, disappointing starts are another reason for the FOMC to keep easing aggressively, though as long as housing is improving the Fed will be happy."
A separate report from the Labor Department showed a modest increase in consumer prices in the month of May, with the slight increase largely reflecting higher shelter costs.
As mentioned above, the rally by stocks came despite lingering uncertainty about the outcome of the Fed's two-day monetary policy meeting.
While the Fed is not expected to announce an immediate change in policy when it releases its post-meeting statement, traders will be looking for any signals regarding when the central bank will scale back its asset purchase program.
Sector News
Health insurance stocks showed a strong move to the upside over the course of the session, driving the Morgan Stanley Healthcare Payor Index up by 2.1 percent. With the gain, the index reached a new record closing high.
WellCare Health Plans (WCG) turned in one of the health insurance sector's best performances, with the managed care services provider advancing by 3.7 percent.
Considerable strength was also visible among defense stocks, as reflected by the 1.7 percent gain posted by the Philadelphia Defense Sector Index, which also set a new record closing high.
Flir Systems (FLIR) helped to lead the defense sector higher, surging up by 6.2 percent following an upgrade by Raymond James to Strong Buy from Market Perform.
Semiconductor, electronic storage, and railroad stocks also saw significant strength on the day, while gold stocks bucked the uptrend amid a sharp drop by the price of the precious metal.
Other Markets
In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Tuesday. Japan's Nikkei 225 Index edged down by 0.2 percent, while China's Shanghai Composite Index inched up by 0.1 percent.
The major European markets also ended the day mixed. While the French CAC 40 Index dipped by 0.1 percent, the German DAX Index rose by 0.2 percent and the U.K.'s FTSE 100 Index advanced by 0.7 percent.
In the bond market, treasuries regained some ground after coming under pressure in early trading but still closed in the red. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, ended the day up by 1.1 basis points at 2.182 percent after reaching a high of 2.218 percent.
Looking Ahead
Trading activity on Wednesday may be somewhat subdued in the lead up to the announcement from the Federal Reserve, which is due at about 2 pm ET, followed by Fed Chairman Ben Bernanke's accompanying press conference.
For comments and feedback: editorial@rttnews.com