Stocks Close Modestly Higher Following Service Sector Data - U.S. Commentary

(RTTNews) - Stocks moved modestly higher over the course of the trading session on Tuesday after showing a lack of direction in morning trading. With the upward move, the major averages added to the moderate gains posted last week.

The major averages closed in positive territory, with the Nasdaq and the S&P 500 at their best levels of the day. The Dow rose 46.16 points or 0.3 percent to 18,538.12, the Nasdaq advanced 26.01 points or 0.5 percent to 5,275.91 and the S&P 500 climbed 6.50 points or 0.3 percent to 2,186.48.

The higher close on Wall Street came following the release of a report from the Institute for Supply Management showing that service sector growth slowed to its lowest rate in over six years in the month of August.

The ISM said its non-manufacturing index tumbled to 51.4 in August from 55.5 in July, falling to its lowest level since February of 2010.

While a reading above 50 indicates continued growth in the service sector, economists had expected the index to show a much more modest drop to 55.0.

"According to the NMI, 11 non-manufacturing industries reported growth in August," said Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee.

He added, "The majority of the respondents' comments indicate that there has been a slowing in the level of business for their respective companies."

On the heels of last Friday's monthly jobs data, the ISM report was seen as further reducing the likelihood that the Federal Reserve will raise interest rates later this month.

Nonetheless, overall trading activity was somewhat subdued, as some traders remained away from their desks following the Labor Day holiday on Monday.

Traders may also have been reluctant to make more significant moves ahead of the release of the Fed's Beige Book report Wednesday afternoon.

The Beige Book, a compilation of anecdotal evidence on economic conditions in the twelve Fed districts, may shed some additional light on the outlook for interest rates.

Sector News

Gold stocks showed a substantial move to the upside on the day, driving the NYSE Arca Gold Bugs Index up by 4.6 percent. With the gain, the index climbed further off the two-month closing low it set last Wednesday.

The rally by gold stocks came amid a sharp increase by the price of the precious metal, with gold for December delivery jumping $27.30 to $1,354 an ounce.

Considerable strength was also visible among biotechnology stocks, as reflected by the 2.9 percent gain posted by the NYSE Arca Biotechnology Index.

Molecular diagnostics company Cepheid (CPHD) led the biotech sector higher, soaring by 52.6 percent after agreeing to be acquired by Danaher (DHR) for $4 billion.

Steel, energy, and utilities stocks also saw notable strength on the day, while some weakness was visible among financial stocks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Tuesday. Japan's Nikkei 225 Index rose by 0.3 percent, while Hong Kong's Hang Seng Index climbed by 0.6 percent.

Meanwhile, the major European markets turned in a mixed performance on the day. While the German DAX Index inched up by 0.1 percent, the French CAC 40 Index edged down by 0.2 percent and the U.K.'s FTSE 100 Index slid by 0.8 percent.

In the bond market, treasuries moved notably higher on the heels of the disappointing service sector data. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 5.3 basis points to 1.543 percent.

Looking Ahead

The Fed's Beige Book is likely to be in focus on Wednesday, potentially leading to choppy trading ahead of the report's afternoon release.