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After The Close - Stocks sold off today after two sessions of big gains inspired by the belief that the Federal Reserve would continue its aggressive bond-buying program. At the closing bell, the Dow Jones Industrial Average was off 206 points and the NASDAQ was 39 points in the red. Market breadth affirmed the negativity, with the number of losing issues outpacing winners by a wide margin on the New York Stock Exchange.

Trading was muted for most of the day until the Fed issued its policy statement at 2:00 p.m. EDT, then volatility picked up, particularly after Fed Chairman Ben Bernanke’s press conference. 

Investors apparently got a bit more than they wanted to hear from Mr. Bernanke, who voiced optimism about the economy, and outlined a time frame in which the central bank’s purchases of federal agency mortgage-backed securities and Treasury bonds could wind down, and eventually end.

It wasn’t only the equity markets that were jolted by the Fed’s policy views, either. Prices on government bonds fell, with the yield (which moves inversely to prices) on the benchmark 10-year Treasury rising to its highest level in over a year.
In all, though, Mr. Bernanke stressed that the central bank’s initiatives will be tied to how well the economy actually performs, and that there will be long lead times between major changes in Fed policy.

The rise in bond yields hurt interest-rate sensitive sectors, such as utilities and homebuilders especially hard. Shares of Atlanta-based power company Southern Co. (SO) and homebuilder PulteGroup (PHM) were among the casualties.

Tomorrow brings the first day this week that the focus will not be almost exclusively on what moves the Federal Reserve might be making. The agenda is full, too, beginning with the weekly initial unemployment claims figure from the Labor Department. Economists are looking for claims to continue at low levels.

Also on tap is the May reading for existing home sales, which is thought to have touched the five million mark, or slightly ahead of the April figure. Data on the nation’s leading indicators for May is due out as well on Thursday. On that front, a somewhat less positive showing than April is forecast. Finally, a regional business survey from the Philadelphia Federal Reserve Bank is projected to be less bearish for June than it was for May.

On the earnings front, reports are due out from grocer Kroger (KR) and software giant Oracle (ORCL). Year-over-year gains are expected in both cases.

Some good news on the economy and/or corporate profits may help Wall Street get back on track after today’s selling.   - Robert Mitkowski

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

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12:15 PM EDT - U.S. stock traders were treading carefully this morning. All three of the major indexes opened down slightly from the prior-day’s close. And, although they all edged ever-so briefly into positive territory, they’ve largely remained in a very narrow range so far in the session. At noon New York time, the Dow Jones Industrials, S&P 500, and NASDAQ composite were all hovering fractionally below the unchanged mark.

There’s little to sway the markets in terms of economic news today. But the trading world is anxiously awaiting the results from the two-day Federal Open Market Committee meeting which ends today. A policy statement is due to be issued at 2:00 p.m. EDT, followed by a press briefing by Chairman Ben Bernanke. The content and phrasing of the Fed’s statement, as well as Mr. Bernanke’s comments, are likely to be closely scrutinized both for what they contain and what they may imply. 

The markets have been in rally mode the last two days, suggesting that traders are leaning towards the Fed staying the course in terms of its monetary easing strategy. However, today’s comments could be a game changer, even if the language only suggests that either the pace or expected duration of the Fed’s bond buying initiative will, or may, be modified. Indeed, market volatility has been up since Ben Bernanke’s comments to Congress on May 22nd hinted that the current quantitative easing may start to wind down. 

We maintain that the Fed is not likely to completely take its foot off the monetary accelerator any time soon. At least not while inflation remains in check and U.S. unemployment levels stay comparatively high. Although there will eventually be some scaling back, the markets would prefer that it be later, rather than sooner.

In the meantime, European traders seemed to have taken a more cautious stance than their U.S. counterparts, with London’s FTSE 100, Germany’s DAX, and France’s CAC 40 showing declines ranging from about a third to one-half a percentage point. - Mario Ferro

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 Investors’ attention will certainly be focused on the Federal Reserve, which ends its two-day rate-policy meeting today. In the meantime, however, there is some corporate news to be aware of. On the earnings front, shares of FedEx Corp. (FDX) are down slightly in the premarket. Although the package delivery company’s headline numbers were solid, investors may be taking issue with the outlook for the express delivery segment. The stock of furniture manufacturer La-Z-Boy (LZB) is also indicating a lower opening this morning, after April-period results failed to impress Wall Street. The biggest decliner appears to be Tetra Tech (TTEK), however, and that equity is down sharply in pre-market trading after the provider of engineering and management consulting services cut its guidance. On the bright side, shares of Adobe Systems (ADBE) are up notably ahead of the bell, after the software developer released May-period financials.

In other news, satellite television provider Dish Network (DISH) said that it will not submit a new offer to acquire Sprint Nextel (S), paving the way for the telecommunications company to be purchased by Japan-based SoftBank. Although Dish has not fully withdrawn from the race to purchase Sprint, management said that it will now focus on buying a stake in Clearwire (CLWR), another telecommunications services provider. Shares of Sprint and down moderately on the news. – Matthew E. Spencer

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 - The U.S. equity market jumped out to a fast start yesterday, but unlike Monday’s performance, was able to hold most of the gains throughout the session. A one-two punch of strong economic data and growing sentiment that the Federal Reserve will stay the course with regards to its bond-buying program pushed equities higher. By the closing bell, the Dow Jones Industrial Average, the NASDAQ Composite, and the broader S&P 500 Index had extended Monday’s gains with respective advances of 138, 30, and 13 points. 

Yesterday’s strong showing was rather encompassing, with each of the top-10 sectors finishing in positive territory. Leadership came from the industrial sector, with notable gains by the transportation stocks. Consumer discretionary and defensive-oriented issues were also in demand. Within the consumer cyclical space, the only notable laggard was the homebuilders, which finished in mixed fashion after the release of residential construction data before trading commenced (more below).  Overall, advancing issues led decliners by more than two-to-one on both the New York Stock Exchange and the NASDAQ. 

So far this week, the economic data have been pretty good. Much like last Friday’s report on producer prices, the Consumer Price Index made for another tame reading on inflation. The benign inflationary environment gave more support to the growing sentiment on Wall Street that the central bank will not ease off on its accommodative monetary policies, at least not in the very near future. Meantime, the Commerce Department reported that both May housing starts and building permits were up sharply, year over year. That report was further evidence that the housing market is continuing to strengthen, which is good news for the U.S. economy.

Speaking of the U.S. economy, the investment community will be waiting with bated breath to hear what the Federal Reserve has to say this afternoon following the conclusion of its two-day monetary policy meeting. We will also not be surprised if trading was subdued ahead of the Federal Reserve news, as traders are not likely to take significant positions until more clarity on the Federal Reserve’s near-term thinking is made public.

Meantime, with the exception of Japan’s Nikkei 225, there has been some mild profit taking overseas ahead of the Federal Reserve’s decision. China’s major equity indexes finished lower overnight, while the European bourses are off modestly as trading has moved into the second half on the Continent.

With less than an hour to go before the start of trading on these shores, the U.S. equity futures are mixed. We would not be surprised if, much like the overseas markets, U.S. investors take a wait-and-see approach ahead of the Federal Reserve announcement at 2:00 P.M. (EDT). After that time, trading will probably be influenced, perhaps in a big way, by what Mr. Bernanke has to say about the direction of the Fed’s monetary policies. Stay tuned.   - William G. Ferguson

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