With Congressional testimony from Federal Reserve Chairman Ben Bernanke overshadowing a batch of upbeat economic data, stocks have wavered over the course of the trading day on Tuesday after initially moving to the upside.
The major averages are currently turning in a mixed performance, with the Nasdaq posting a modest loss. While the Nasdaq is down 6.26 points or 0.2 percent at 3,109.99, the Dow is up 66.62 points or 0.5 percent at 13,850.79 and the S&P 500 is up 1.35 points or 0.1 percent at 1,489.20.
The choppy trading on Wall Street comes as traders digest Bernanke's semi-annual testimony before the Senate Banking Committee.
In his prepared remarks, Bernanke noted that the Fed's highly accommodative monetary policy has several potential costs and risks, including leading to higher inflation.
However, he said the Fed is closely monitoring the potential risks and said they are outweighed by the benefits of promoting a stronger economic recovery and more-rapid job creation.
Paul Ashworth, Chief U.S. Economist at Capital Economics, said, "Overall, even if he still believes that the benefits are greater than the costs, the time Bernanke devoted to running through those costs in his testimony illustrates how the debate within the FOMC is changing."
Bernanke also expressed concerns about the automatic spending cuts due to go into effect at the end of the month, indicating that the cuts could be a significant near-term burden on the economy recovery.
The Fed Chief suggested that Congress replace the sequester with policies that reduce the federal deficit more gradually in the near term but more substantially in the longer run.
As a result of the focus on Bernanke's comments, traders have largely shrugged off the latest batch of economic data, including upbeat reports on new home sales and consumer confidence.
The Commerce Department said new home sales surged up by 15.6 percent to a seasonally adjusted annual rate of 437,000 in January from the revised December rate of 378,000. With the increase, sales rose to their highest rate since July of 2008.
Economists had been expecting new home sales to show a much more modest increase to an annual rate of 381,000 from the 369,000 originally reported for the previous month.
Separately, the Conference Board said its consumer confidence index jumped to 69.6 in February from a revised 58.4 in January. Economists had been expecting the index to climb to 61.0 from the 58.6 that had been reported for the previous month.
Lynn Franco, Director of Economic Indicators at the Conference Board, said, "Consumer Confidence rebounded in February as the shock effect caused by the fiscal cliff uncertainty and payroll tax cuts appears to have abated."
Among individual stocks, shares of Home Depot (HD) are up by 5.5 percent after the home improvement retailer reported better than expected fourth quarter results and announced a $17 billion share repurchase program. The strong gain is helping to keep the Dow firmly in positive territory.
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Sector News
While many of the major sectors are showing only modest moves, housing stocks have shown a strong move to the upside on the heels of the new home sales report. The Philadelphia Housing Sector Index is up by 2 percent, bouncing off a nearly two-month closing low.
Hovnanian Enterprises (HOV) and Standard Pacific (SPF) are turning in two of the housing sector's best performances after helping to lead the way lower on Tuesday.
Gold stocks are also seeing significant strength, with the NYSE Arca Gold Bugs Index up by 1.5 percent. The strength in the sector comes as gold for April delivery has surged up $27.20 to $1,613.80 an ounce.
On the other hand, healthcare stocks have come under pressure on the day, with the Morgan Stanley Healthcare Provider Index and the Morgan Stanley Healthcare Payor Index both down by 1.4 percent. Both indices have fallen to one-month intraday lows.
Other Markets
In overseas trading, stock markets across the Asia-Pacific region moved sharply lower during trading on Tuesday following the overnight weakness on Wall Street. Japan's Nikkei 225 Index tumbled by 2.3 percent, while Hong Kong's Hang Seng Index fell by 1.3 percent.
The major European markets also showed significant moves to the downside on the day. While the U.K.'s FTSE 100 Index slid by 1.3 percent, the German DAX Index and the French CAC 40 Index plummeted by 2.3 percent and 2.7 percent, respectively.
In the bond market, treasuries have moved notably higher, extending yesterday's strong move to the upside. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, has fallen by 4.5 basis points to 1.85 percent.
Great idea regarding “The Fed Chief suggested that Congress replace the sequester with policies that reduce the federal deficit more gradually in the near term but more substantially in the longer run”.
Bernanke Indigestion.
With the nation coming to a grinding halt being short 100 Billion, one wonders what would happen to the economy, and its stewards, if government spending had to stay within its means and short of enslaving present and future generations to enormous public debt service. Politicians jumping off the cliff?
Looking for wasted taxpayer money to close the gap? They could drum up half the cliff money (50 B/year) by allowing medicare to negotiate for competitive drug prices for the exploding boomers.
Great idea regarding “The Fed Chief suggested that Congress replace the sequester with policies that reduce the federal deficit more gradually in the near term but more substantially in the longer run”.
Why not start with a penny the first day and double it each successive day and do it for about five years or so.
What a load of illogicaL BS! If Bernanke's QEX and ~0% intererst rate policies were working, he would not have to continue with life support for the economy and pumping The Great Wall Street Casino market bubble.
In REAL TERMS, it would take a healthy American economy with a TRUE GDP of 6-8%, projecting to 8-10%, to support the current levels of the Fed-created stock "bull market"; not the tanking economy that is still on life-support after four years and a NEGATIVE GDP (below the inflation rate).
unless draghi starts printing money, we´ve seen the top. join the short party.