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After The Close - Investors had a lot of information to digest today, and it showed up in another back-and-forth stock-market session. Primarily, the volatility had a lot to do with the day’s good news on the economy being offset by fears of higher interest rates down the road.

The morning started out with word from payroll processing giant Automatic Data Processing (ADP) that private-sector jobs rose by a healthy 218,000 in July. That figure is not far off from what the Labor Department is expected to report on Friday in terms of nonfarm job gains for the month now winding down. A string of strong employment increases has helped stocks reached new heights this year.

Before the opening bell, too, came word that the nation’s second-quarter GDP expanded by a robust 4.0%, or much better than the consensus forecast of 2.9%. True, some of that advance might have been made up from the first quarter, when nasty weather held back business performance. But the strong GDP number was the kind of data missing over the past few years, a period when modest economic growth has reigned, and was greeted warmly.

Initially, the solid payroll data and the pickup in GDP pushed stocks higher. But then investors apparently started to worry about whether the good news might cause the Federal Reserve to raise interest rates sooner than they otherwise might have. Stocks began to fall in mid-morning as a result, although there was selective strength among technology issues on the NASDAQ, fueled by Twitter’s (TWTR) strong showing.

As it happened, the Fed gave no indication that it was leaning toward hiking rates any more rapidly when it concluded its two-day policy meeting this afternoon. That helped stocks to firm somewhat. The central bank did acknowledge that business conditions have rebounded from earlier in the year, but it stuck to its plan to just gradually taper its bond-buying program.

Wall Street, nevertheless, drew its own conclusions about the direction of interest rates after signs that inflation was beginning to tick higher. The bond market sold off, with the yield on the 10-year Treasury note climbing to 2.55%, from 2.46% (bond prices move inversely with interest rates. Utility stocks also fell, with their high yields became marginally less attractive in a rising-rate environment.

At the closing bell, the bulls and bears had fought to a split decision. A 32-point loss on Dow Jones Industrial Average was largely offset by a 20-point rise on the NASDAQ, while the broader S&P 500 was virtually unchanged. - Robert Mitkowski

At the time of this writing, the author did not have positions in any of the companies mentioned.

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The Federal Reserve Concludes Its FOMC Meeting With More Of The Same

The Federal Reserve has ended its two-day Federal Open Market Committee meeting and it did little to change the basic monetary landscape. Specifically, the FOMC members voted 9-to-1 to keep short-term interest rates unchanged at 0%-0.25% and to pare another $10 billion from its monthly bond purchases.

The central bank, meanwhile acknowledged that the economy was strengthening and that inflation has moved somewhat closer to the Fed's longer-run target, which is about 2%.

The latest musings on the economy and interest rates follow the report early this morning of a 4.0% rate of second-quarter GDP growth. That pace easily surpassed the expected 3.0% gain. Also, inflation increased in the second quarter, coming in just above 2%.

Importantly, the Fed noted that the likelihood of inflation remaining below 2%, a potential danger point due to the risk of deflation, had diminished somewhat. That was good news, as some have feared deflation as an end result of the irregular and understated, rate of economic growth.

Also, the FOMC opined that labor market conditions were improving, which could become apparent when the government issues its monthly data on job growth and unemployment this Friday. The Fed's statement also affirmed that it saw household spending rising moderately, while the recovery in housing was still slow. Recent reports on new home sales, housing starts, and pending home sales suggested that this sector's comeback remained slow.

Overall, there were, as noted, few surprises, although we did get the sense that the Fed might move a little more quickly to raise interest rates than is commonly believed. For now, though, our best guess is that the first such rate hike will not commence until well into 2015. – Harvey S. Katz, CFA

At the time of this article's writing, the author did not have positions in any of the companies mentioned.

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12:30 PM EDT - The U.S. stock market opened higher this morning, but the move turned out to have little staying power. At just past noon in New York, the market is mixed. The Dow Jones Industrial Average is off 72 points; the broader S&P 500 Index is down five points; while the NASDAQ is holding on to a seven point gain. Market breadth shows a divided market, as declining issues are ahead advancers on the NYSE. However, these statistics look somewhat better on the NASDAQ. Still, most market sectors are in negative territory. There is considerable weakness in the utility names, the consumer stocks, and the energy issues. Meanwhile, some strength can be found in the healthcare and technology stocks.

The stock market has been encountering some resistance lately. Notably, traders received some favorable economic and corporate news this morning, and the fact that stocks failed to stage a meaningful advance may well be cause for concern. Too, today’s move lower puts the Dow Jones Industrial Average at its 50-day moving average, which will likely be an area to watch.

As noted, the economic news was quite favorable today. Specifically, the first estimate for second-quarter GDP showed the economy expanding 4.0%. This reading was quite a bit better than expected. The favorable news may have some traders now worried that the Fed will be inclined to curtail its loose monetary policy, sooner rather than later. We will hear from the Fed shortly, when the FOMC concludes its two day meeting and issues a statement later today.

Finally, traders received some favorable corporate reports this morning. In the technology area, Twitter (TWTR) put out surprisingly strong results and that stock is surging 21%. Elsewhere, U.S. Steel (X) shares are rising, as well, as investors were pleased with that company’s report. - Adam Rosner

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

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Stocks To Watch From The Survey - Although earnings season is beginning to slow, there are a few companies making headlines today. Notably, U.S. Steel Corp. (X), one of the world’s largest integrated steel producers, reported second-quarter earnings that largely surpassed expectations, sending its stock sharply higher at the open. Meantime, shares of microblogging site Twitter Inc. (TWTR) are also up notably this morning, after the company reported second-quarter results that topped what the investment community had been looking for, including a surge in users to its site. – Kathryn M. Drew

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

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Before The Bell - Wall Street started yesterday on a nice up note, with the Dow Jones Industrial Average again climbing past the psychologically important 17,000 mark. The early strength was underpinned by a pair of relatively upbeat earnings reports from Dow-30 mainstays, Pfizer (PFE - Free Pfizer Stock Report) and Merck (MRK - Free Merck Stock Report). Both companies narrowly bested consensus expectations, sending each issue to an early gain. Merck, meantime, held its advance over the course of the session, but Pfizer gave it back within several hours and proceeded to ease back below the neutral line as the session continued.

Then, after this modestly stronger opening by the market, the Conference Board chimed in with a better-then-expected survey on Consumer Confidence. That metric, which had risen to 86.4 in June, had been expected to be flat in July. But the data showed that confidence soared above 90 this month for the first time since October 2007, or just before the onset of the long recession. The result, 90.9, gave Wall Street another lift, sending the leading averages quickly to their session highs.

Unfortunately for the bulls, that euphoria didn't last, as equities proceeded to head south for a time, with the aforementioned Dow surrendering all of its 70-point gain and falling some 30 points into the red shortly before noon on the East Coast. However, it was not a case of the fundamentals that worried Wall Street, but rather concerns regarding the European Union's having reached an agreement on imposing toughened sanctions against Russia. Clearly, the markets are sensitive to the goings on in Ukraine, not to mention the widening areas of strife in the Middle East. So as we reached the halfway mark of the trading day, the major averages were all just about back to where they started the session.

The market then proceeded to move in and out of the black all afternoon, continuing the mixed pattern that has been in effect for much of the past week, as increasing event risk overseas offsets what continues to be generally welcoming fundamentals stateside. On point, save for housing, most business indicators remain favorable, and that point was underscored by the release, moments ago, of the first estimate of second-quarter gross domestic product (see below). For now, though, events abroad are holding the market's focus, and that is not good news for the bulls.

Meanwhile, in other news, the Federal Reserve will conclude its two-day FOMC meeting today, with no discernible change in the lead bank's monetary policies expected. Overall, we would look for the Fed to pare another $10 billion from its monthly asset purchases, as it concludes this popular program over the next several months. Also, we expect the Fed to maintain its near-zero interest-rate levels until sometime in 2015. As for other economic releases, we are scheduled to get data tomorrow on initial and continuing jobless claims and then Friday, the Labor Department will weigh in on monthly non-farm payrolls and the jobless rate. Some 90 minutes after that the Institute for Supply Management is set to give investors a look into the manufacturing sector for the past month. A small gain is the forecast there.

As to the final numbers, the Dow fell 70 points, while the S&P 500 Index eased nine points. The NASDAQ, which had ably countered this downtrend through much of the day, finally succumbed, however, closing off two points. There was a divided quality in the small- and mid-cap area, with the Russell 2000 adding two points, while the S&P Mid-Cap 400 dropped seven points.

Meantime, things now are under way overseas, and in news out of Asia overnight, we see that the markets were generally higher, while in Europe, the bourses are tracking a higher path. As to our futures, they tell a positive story, with the Standard and Poor's 500 Index futures up eight points and the NASDAQ futures are ahead by 18 points. helping the market's likely higher start, in addition to the much better GDP data, was an upbeat issuance by Twitter Inc. (TWTR). Strong user growth there is pushing that stock to a stellar pre-market gain on the order 25%.

GDP Surges In The Second Quarter

Finally, the Commerce Department has just issued key data on the second-quarter economy in which the nation's gross domestic product, a big loser in the weather-impacted first quarter when GDP plunged by 2.1%, came back strongly in the recently concluded three months, gaining an eye-opening 4.0%. That gain was much better than the 2.9% consensus gain forecast. The increase was headlined by a 2.5% surge in consumer spending in the period; in the opening quarter consumer expenditures had risen by just 1.2%. Meanwhile, bigger stock dividends helped to boost disposable income by 3.8%. Also adding to GDP growth in the latest period was a pickup in construction spending, increased business investment, a bigger buildup in inventories, and a rise, albeit a small one, in government spending. Along with the strong rise in GDP was also a bigger gain in inflation, with that metric up by a hefty 2.3%. With the Federal Reserve meeting today, such an increase could well be on its mind, although probably not enough so for it to shift monetary gears just yet. - Harvey S. Katz

 

At the time of this article's writing, the author did not have positions in any of the companies mentioned. 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.