Stocks Give Back Ground Following Recent Upward Trend - U.S. Commentary

(RTTNews) - Stocks moved modestly lower over the course of the trading day on Tuesday, giving back some ground after trending higher over the past few weeks. Renewed concerns about the outlook for the Federal Reserve's stimulus program inspired some traders to cash in on recent strength in the markets.

The major averages climbed well off their worst levels of the day but remained stuck in the red. The Dow edged down 32.41 points or 0.2 percent to 15,451.85, the Nasdaq dipped 8.99 points or 0.3 percent to 3,598.50 and the S&P 500 slid 6.24 points or 0.4 percent to 1,676.26.

The weakness that emerged on Wall Street was partly in reaction to comments from Kansas City Federal Reserve President Esther George.

In an interview with the Fox Business Network, George said it's time for the Fed to begin adjusting its asset purchase program in light of signs of an improving economy and labor market.

George, a member of the Fed's policy-setting committee, has voted against the central bank's recent policy actions, calling instead for a statement indicating that the Fed will reduce the pace of its asset purchases in the very near future.

While George's comments should not have come as much of a surprise, the pullback by the markets reflected the ongoing jitters regarding the Fed's stimulus program.

Nonetheless, selling pressure remained relatively subdued, as traders looked ahead to Fed Chairman Ben Bernanke's testimony before the House Financial Services Committee on Wednesday.

Bernanke will likely attempt to ease concerns that the Fed will begin scaling back its stimulus program before the economy has shown significant signs of stability.

The Fed chief is also likely to reiterate recent remarks stressing that monetary policy will remain accommodative even as the central bank starts to taper its asset purchase program.

Meanwhile, traders largely shrugged off the latest batch of economic data, including reports showing that consumer prices and industrial production both rose by a little more than expected in June.

The National Association of Home Builders also released a report showing that homebuilder confidence unexpectedly jumped to a seven-year high in July.

On the earnings front, shares of Coca-Cola (KO) fell by 1.9 percent after the beverage giant reported second quarter earnings that matched analyst estimates but on weaker than expected revenues. The company also reported disappointing volumes for the quarter.

Goldman Sachs (GS) also moved to the downside even though the financial giant reported second quarter earnings and revenues that came in well above expectations.

Meanwhile, healthcare giant Johnson & Johnson (JNJ) ended the day unchanged after reporting better than expected second quarter results.

Sector News

After trending higher over the past three weeks, brokerage stocks gave back some ground on the day. The NYSE Arca Broker/Dealer Index fell by 1.2 percent after ending the previous session at its best closing level in almost five years.

Charles Schwab (SCHW) helped to lead the brokerage sector lower, with the discount broker falling by 3.3 percent after reporting weaker than expected second quarter earnings.

Significant weakness was also visible among chemical stocks, as reflected by the 1.2 percent loss posted by the Dow Jones Chemicals Index. FMC Corp. (FMC), PPG Industries (PPG), and Dow Chemical (DOW) posted notable losses.

Oil service, biotechnology, and trucking stocks also moved to the downside on the day, although selling pressure was relatively subdued.

Meanwhile, gold stocks moved sharply higher over the course of the session, driving the NYSE Arca Gold Bugs Index up by 5.6 percent. The rally by gold stocks came as gold for August delivery climbed $6.90 to $1,290.40 an ounce.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Tuesday. Japan's Nikkei 225 Index rose by 0.6 percent, while South Korea's KOSPI Index fell by 0.5 percent.

Meanwhile, the major European markets all moved to the downside on the day. While the French CAC 40 Index slid by 0.7 percent, the U.K.'s FTSE 100 Index and the German DAX Index dropped by 0.5 percent and 0.4 percent, respectively.

In the bond market, treasuries ended the day modestly higher extending a recent upward trend. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, dipped by 2.4 basis points to 2.532 percent.

Looking Ahead

While Bernanke's remarks are likely to be in focus on Wednesday, the Commerce Department is also scheduled to release its monthly report on housing starts.

Later in the day, the Fed is also due to release its Beige Book, which consists of anecdotal evidence on economic conditions in each of the twelve Fed districts.

On the earnings front, Yahoo (YHOO) is among the companies reporting their quarterly results after the close of today's trading, while Bank of America (BAC) is among the companies due to report their results before the start of trading on Wednesday.