Stocks Close Moderately Higher Following Volatile Trading Day - U.S. Commentary

(RTTNews) - Stocks fluctuated over the course of the trading day on Tuesday, as traders digested relatively upbeat retail sales data as well as comments regarding the outlook for the Federal Reserve's stimulus program from Atlanta Fed President Dennis Lockhart.

The major averages showed big swings back and forth across the unchanged line before ending the day moderately higher. The Dow edged up 31.33 points or 0.2 percent to 15,451.01, the Nasdaq rose 14.49 points or 0.4 percent to 3,684.44 and the S&P 500 climbed 4.69 points or 0.3 percent to 1,694.16.

The volatility seen over the course of the trading day came following the release of a report from the Commerce Department showing the fourth consecutive monthly increase in retail sales in July.

The report said retail sales edged up by 0.2 percent in July following an upwardly revised 0.6 percent increase in June.

While the increase in overall sales fell short of economist estimates for 0.3 percent growth, sales rose by a little more than expected when excluding auto sales.

Excluding a 1.0 percent drop in auto sales, retail sales rose by 0.5 percent in July compared to a 0.1 percent increase in June. The increase exceeded economist estimates for 0.4 percent growth.

The report provided signs of further improvement in the economy but also added to recent speculation that the Federal Reserve will begin scaling back its asset purchase program at its September meeting.

Trading was also impacted by comments from Atlanta Fed President Dennis Lockhart, who stressed that the decision to reduce asset purchases will be data-dependent but argued that the recent data does not present a clear picture.

Speaking to the Kiwanis Club of Atlanta, Lockhart advised against committing to a full phase-out of asset purchases and suggested that the first adjustments to asset purchases ought to be thought of as a cautious first step.

Lockhart, who is not a voting member of the Fed's monetary policy setting committee, reiterated that the decision to begin scaling back bond purchases could come at any of the three remaining policy meetings this year.

Sector News

Brokerage stocks showed a strong move to the upside over the course of the trading day, driving the NYSE Arca Broker/Dealer Index up by 1.2 percent. The index is climbing back toward the four-year highs it set earlier this month.

TD Ameritrade (AMTD) helped to lead the brokerage sector higher, surging up by 3.9 percent, while Charles Schwab (SCHW) also posted a strong gain.

Significant strength also emerged among semiconductor and networking stocks, with the Philadelphia Semiconductor Index and the NYSE Arca Networking Index advancing by 1.2 percent and 1.1 percent, respectively. The networking index reached a two-year closing high.

Meanwhile, substantial weakness remained visible among airline stocks, as reflected by the 3.9 percent loss posted by the NYSE Arca Airline Index. The drop pulled the index down to its lowest closing level in a month.

US Airways (LCC) helped to lead the airline sector lower, tumbling by 13.1 percent on news that the Justice Department has filed a lawsuit challenging the airline's proposed merger with American Airlines parent AMR Corp.

Gold stocks also came under considerable selling pressure, moving lower along with the price of the precious metal. Electronic storage, housing, and commercial real estate stocks also posted notable losses.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved notably higher during trading on Tuesday. Japan's Nikkei 225 Index surged up by 2.6 percent, while Hong Kong's Hang Seng Index jumped by 1.2 percent.

The major European markets also moved to the upside on the day. While the German DAX Index advanced by 0.7 percent, the U.K.'s FTSE 100 Index and the French CAC 40 Index rose by 0.6 percent and 0.5 percent, respectively.

In the bond market, treasuries moved sharply lower in reaction to the relatively upbeat retail sales data. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 11 basis points to 2.715 percent.

Looking Ahead

Trading on Wednesday could be impacted by the Labor Department's report on producer prices as well as remarks by St. Louis Fed President James Bullard.