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After The Close - For about two-thirds of today’s session the major equity indexes traded in a tight band around the neutral line. But after starting the day to the upside and building upon these gains into the early afternoon, helped by some encouraging economic reports (more below), the major averages eventually gave way to some selling. This likely was prompted by the release of the minutes from the latest Federal Open Market Committee meeting, which hinted that some form of tapering is likely in the coming months.

As noted, much of today’s economic news was encouraging. Before the market opened, we received data on retail sales and consumer prices for the month of October, and neither report disappointed. The data — which showed that retail sales advanced 0.4% and consumer prices fell 0.1%--were encouraging signs for the consumer sector ahead of the fast-approaching holiday shopping season. On the other hand, the latest data on existing home sales were a bit discouraging, as it showed that sales eased in October, falling by 3.2% to an annualized rate of 5.12 million homes. But even that report had a few silver linings, as it showed that lean inventories are keeping prices firm and that the number of distressed transactions, which includes foreclosures and short sales, accounted for just 14% of all sales last month.

Meanwhile, the minutes from the Federal Reserve’s late-October monetary policy meeting gave a little bit more clarity to the lead bank’s thinking on tapering. Specifically it showed that Federal Reserve is not against some form of tapering in the coming months even if the labor market situation doesn’t show continued signs of improvement. However, given the downside risks that still persist, we expect the central bank to proceed cautiously on this front. If the officials start to publicly doubt the effectiveness of the ongoing bond-buying initiatives or believe the risks outweigh the benefits, they would have to completely change their tune, and doing so could unnerve the equity and bond markets. Our sense is that this prompted some of the selling we saw in the last few hours of trading today.

The direction the Federal Reserve ultimately decides to proceed will likely have a significant impact on bonds and higher-yielding equities. Just the thought today that the Federal Reserve may begin to reduce its asset purchases in the near future pushed yields, which move in the opposite direction to the price, higher on fixed-income securities. The higher yields on less risky government instruments also would reduce the appeal of higher-yielding equities among income-oriented investors. Not surprisingly, telecommunications stocks and the utilities issues weakened notably in the final few hours of trading.

Nevertheless, the higher-yield sectors were not the only groups under pressure today among the 10 major sectors. In fact, all but the defensive-oriented healthcare sector finished in the red, which did not look like it would be the case at the midpoint of today’s trading session. The negative tone to trading in the second half of the session was reflected in the sharp reversal in the advance/decline data. By the close of trading, declining stocks outnumbered advancers by a notable margin on both the Big Board and the NASDAQ.

As we noted in our market commentary at the start of this week, any perceived deviation in the Federal Reserve’s plan to keep its stimulus measures in place may rattle an equity market that is clearly overextended—and that certainly seemed to be the case today. Will this late-afternoon selloff lead to another buy-on-the-dip scenario on Wall Street tomorrow or could we be looking at an opportunity for the bears to make a statement in an overbought market? Our sense is that major equity averages may still continue to trade in a tight band as investors weigh the impact of a possible tapering against some encouraging reports on the U.S. economy and a upcoming stretch that historically been good for investors, so much so that it has been dubbed the Santa Claus rally. - William G. Ferguson


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 EST - The U.S. stock market is making progress today. As we pass the noon hour in New York, the major averages are pressing higher. The Dow Jones Industrial Average is up about 25 points; the broader S&P 500 Index is ahead five points; and the technology-heavy NASDAQ, which is displaying some leadership, is ahead 17 points. Market breadth suggests a positive tone to the session, as advancing issues are outnumbering decliners by a decent margin on the NYSE and on the NASDAQ. Most of the major market sectors are trading higher. Notably, some strength can be seen in the healthcare sector, and in the technology names. In contrast, utilities, which tend to be defensive, are down.

Technically, the S&P 500 Index, after pulling back for the past two days, is advancing once again, with the broad index likely again testing the widely-watched 1,800 area. Meanwhile, it has become a bit hard to accurately measure sentiment. The VIX is down about 1%, to 13.25 today. However, it should be noted that the VIX has been stuck at very low levels for quite some time, rarely moving higher than 20 over the past year, or so. There is a sense among traders that the market may well be extended, as we have not seen a healthy pullback in some time. Price-to-earnings multiples are elevated, and appreciation in many cases is limited. Nonetheless, for now, traders seem to be sticking with stocks, possibly hoping for a year-end rally.

Meantime, there were a few notable economic reports issued this morning. Retail sales figures increased 0.4% in October, which was better than expected, and ahead of last month’s reading. Results were a bit less impressive, excluding automotive sales. Meanwhile, consumer prices suggest that there is little need to worry about inflation, as the CPI remained quite tame in October. Elsewhere, existing home sales came in at 5.12 million units, annualized, in October. While this was a bit lighter than some had anticipated, the figure is still decent, and the home building stocks are trading higher today.

In the corporate arena, there were a few earnings reports released today. For one, Deere (DE) stock is trading higher on a decent outlook. J.C.  Penny (JCP) stock is up, despite a mixed release. But, Lowe’s (LOW) shares are trading lower on unimpressive guidance. Also, Staples (SPLS) stock is down, after the office supply retailer put out a mixed 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 SurveyEarnings season has gotten a second wind now that October-period reports are flowing in, many from retailers with fiscal years that end in January. Some of today’s early winners appear to be department store operator J.C. Penney (JCP), farm equipment manufacturer Deere & Co. (DE), furniture maker La-Z-Boy (LZB), and security services provider The ADT Corp. (ADT), as all of those stocks are moving higher ahead of the bell.Conversely, investors took issue with several other earnings reports, including those from home-improvement retailer Lowe’s (LOW), office supplies seller Staples (SPLS), and J.M. Smucker (SJM), a manufacturer of jams, jellies, and other packaged foods. Consequently, these three stocks are indicating lower openings this morning. – Matthew E. Spencer

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

Before The Bell - The so-called hat trick, in which, according to hockey lore, three goals are scored by one player in one game, has not quite materialized on Wall Street for the past several days, but has come up short in each instance. Specifically, the Dow Jones Industrial Average managed to briefly pass the psychologically important 16,000 mark on Monday, for the first time ever, only to fall back later in the day; the Standard and Poor's 500 Index crossed the 1,800 level for the first time ever as well on Monday, but could not hold that new high ground; and the tech-laden NASDAQ pushed up close to 4,000 that same day, but could not quite make it.

Thus, three tries and as yet no close above those notable levels. That is not a bearish development, necessarily, though, as the three averages may just be holding their fire for another run at these critical levels in the coming days--perhaps later today, if the news breaks in a bullish way. In the case of the Dow and the S&P, as noted, those important levels have never been crossed before. For the NASDAQ, 4,000 would not represent a record, but it would be a 14-year high. To wit, that threshold has not been crossed since before the dot.com bubble burst in 2000.

As to the market, it looks to have paused ahead of today's release of the Fed minutes from its last FOMC meeting. In truth, however, the setback yesterday was muted, with the selling quite mild. Of note, the Dow was off nine points yesterday, while the S&P slipped less than four points. The NASDAQ, though, fell back by almost 18 points, a more notable reversal on selective tech weakness. 

As to news, there was little of it the past two days, while today we have just gotten data on retail spending and consumer prices for October. There were no big surprises in either case. Meanwhile, in addition to the pending release of the Fed minutes, the National Association of Realtors is due to issue its report on sales of existing homes later this morning.

As to the reports just issued, the retail spending data were a bit better than forecast, with a gain of 0.4% being noted; an increase of just 0.1% had been the forecast. As to the core retail sales result, which excludes autos and related products, the increase there was 0.2%; a gain of 0.1% had been the expectation. With respect to consumer prices, they fell by 0.1% last month; the consensus had called for an unchanged reading. Thus, the news continues to be reasonably good from the point of view of the consumer, which is a critical factor going forward, as the Christmas selling season is just about at hand.

Finally, in news, tomorrow, a Senate banking committee panel is due to vote on the nomination of Janet Yellen to head the Federal Reserve when Ben S. Bernanke steps down in January. An up vote is likely, but we would expect some notable dissent. A full Senate vote is expected to follow, where an affirmative vote is likely as well, but also with some strong opposition. Her dovish monetary views would seem to be a sticking point in many cases.

As to the stock market in the day ahead, a nicely higher start would seem ahead when the bulls and the bears get down to business in about a half hour from now, with the futures having firmed up nicely in the past few minutes.   – Harvey S. Katz 

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