On Tuesday, investors’ focus was less on stock market performance than on the Federal Reserve meeting and today’s policy statement. Most economists are expecting the Fed to begin “tapering” their bond purchasing program by $10 billion to $15 billion per month.
Good news from Microsoft (MSFT) drove the technology sector higher. Mr. Softie announced a $40 billion share repurchase plan and raised its quarterly dividend by 22% to $0.28 a share. Apple (AAPL) jumped 1.2% in anticipation of a similar announcement since, like Microsoft, the company is flush with cash.
Homebuilder confidence was steady in September, and the Consumer Price Index for August rose by just 0.1%. Hardly any signs of inflation have appeared over the last 12 months — all measurements are below the 2% level.
At Tuesday’s close, the Dow Jones Industrial Average was up 35 points to 15,530, the S&P 500 rose 7 points to 1,705, and the Nasdaq gained 28 points at 3,746. The NYSE traded just 577 million shares, well below the average of about 630 million this year. The Nasdaq crossed 351 million shares. On both major exchanges, advancers exceeded decliners by about 2-to-1.
Despite low volume and a plethora of national and international ills, the Dow Jones Industrial Average, along with other higher-quality indices, continues to plod higher.
But it has been slow going for the Dow despite a shakeup that removed Alcoa (AA), Hewlett-Packard (HPQ) and Bank of America (BAC) from the index, replacing them with Nike (NKE), Visa (V) and Goldman Sachs (GS).
After a run from under 15,000 just two weeks ago, the index is again threatening to break to fresh highs. But MACD is now slightly overbought, and the attempt could get bogged down again.
The Dow Jones Utility Average reversed from its bullish support line on Sept. 3, and is attempting to pierce its 200-day moving average, now at 487, and its 50-day moving average at 490. Its MACD just issued a buy signal.
As noted last week, this sector presents some of the best long-term bargains in the stock market. Dominion Resources (D) was recommended as a powerful player in the export of natural gas.
Conclusion: If you are like me, you dislike waiting on the Fed for the next market direction. But there seems little doubt that the near-term action will be determined this afternoon.
If the Fed decides to cut its bond buying program by more than $15 billion, look for sellers to prevail for the short run. But even the Fed can’t have a lasting long-term impact on stock prices. A strong economy and investors’ confidence will have a real impact long after the Fed has terminated its stimulus plans.
As my InvestorPlace.com colleague, Josh Levine, puts it: “The economic recovery, which began in July of 2009, is 51 months old. Since 1945, the average period of expansion has been 58 months. But the concern is less the age than the strength of the expansion at this point in the recovery.”
Today, the Fed should signal whether the economy and the stock market can stand on their own without the injection of cash from the government.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.