Fed Rally Fades, Resulting In Mixed Close On Wall Street - U.S. Commentary

(RTTNews) - Following the Federal Reserve-inspired rally seen in the latter part of the previous session, stocks turned in a relatively lackluster performance throughout the trading day on Thursday.

The major averages eventually ended the day mixed, as the tech-heavy Nasdaq extended yesterday's upward move but the Dow and the S&P 500 gave back some ground.

While the Nasdaq edged up 5.74 points or 0.2 percent to 3,789.38, the Dow dipped 40.39 points or 0.3 percent to 15,636.55 and the S&P 500 slipped 3.18 points or 0.2 percent to 1,722.34.

The choppy trading seen on Wall Street came as traders took a breather following yesterday's rally, which was inspired by the Federal Reserve's decision to refrain from scaling back its stimulus program.

On Wednesday, the Fed said it would continue to purchase bonds at a pace of $85 billion per month, noting that it decided to wait for more evidence that economic progress will be sustained before adjusting the pace of its purchases.

The move came as a surprise to economists and the markets and triggered a rally that lifted the Dow and the S&P 500 to new record closing highs.

In remarks at a press conference, Fed Chairman Ben Bernanke suggested that the decision to maintain the asset purchase program was a precautionary move due in part to lingering economic uncertainty as well as the potential for another budget crisis.

Subsequently, traders are likely to keep a close eye on incoming economic data as well as developments in Washington in the coming weeks.

A batch of economic data released this morning largely painted a positive picture of the economy, with a report from the National Association of Realtors showing that existing home sales reached their highest level in over six years in August.

NAR said existing home sales rose 1.7 percent to an annual rate of 5.48 million in August after jumping 6.5 percent to a rate of 5.39 million in July. The increase lifted existing home sales to their highest annual rate since February of 2007.

However, NAR chief economist Lawrence Yun suggested that the market may be experiencing a temporary peak, noting that several market frictions may lead to uneven sales in the months ahead.

The Philadelphia Federal Reserve also released a report showing that its index of regional manufacturing activity rose to a two-year high in September, while the Conference Board said its index of leading economic indicators rose slightly more than expected in August.

Sector News

While many of the major sectors ended the day showing only modest moves, substantial weakness was visible among gold stocks.

Reflecting the weakness in the gold sector, the NYSE Arca Gold Bugs Index tumbled by 3.2 percent after surging up by 9.6 percent on Wednesday. Traders cashed in on yesterday's gains, which came as the price of gold spiked higher after the Fed announcement.

Health insurance stocks also saw notable weakness after being among the few groups to buck the uptrend in the previous session. The Morgan Stanley Healthcare Payor Index fell by 2.9 percent, pulling back further off Monday's record closing high.

Housing, banking, and steel stocks also moved to the downside on the day, while modest strength was visible among airline and railroad stocks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region saw considerable strength on Thursday following the overnight rally on Wall Street. Japan's Nikkei 225 Index and Hong Kong's Hang Seng Index jumped by 1.8 percent and 1.7 percent, respectively.

The major European markets also moved to the upside on the day. The U.K.'s FTSE 100 Index rose by 1 percent, while French CAC 40 Index and the German DAX Index ended the day up by 0.9 percent and 0.7 percent, respectively.

In the bond market, treasuries moved moderately lower after ending the previous session sharply higher. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 4 basis points to 2.748 percent.

Looking Ahead

A lack of major economic news is likely to keep some traders on the sidelines on Friday, although trading may be impacted by speeches by several Fed officials.