Fed Love Talk Spurs the Markets Back Up

Stocks get a boost as speeches by FOMC members Bullard and Dudley signal that the U.S. Federal Reserve is in no hurry to taper back quantitative easing.

Stocks resumed their climb skyward at approximately 10:30 EDT on Tuesday after St. Louis Federal Reserve president James Bullard spoke in Frankfurt about the future of quantitative easing. As a member of the Fed’s Federal Open Market Committee, Bullard raised hopes that quantitative would continue with his remark that the Fed should continue its bond-buying program.

Another FOMC member, New York Fed president William Dudley, also explained during a speech on Tuesday that he has not yet made a decision as to whether the Fed’s bond-buying should be tapered back or increased. Many commentators have assumed that Dudley was a champion for cutting back on quantitative easing.

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The speeches by two members of the FOMC — which will be meeting again on June 18 — raised investors’ hopes that the Fed’s widely publicized plans to cut back on its bond purchases will be delayed until economic reports become more uniformly positive.

The Dow Jones Industrial Average (NYSEARCA:DIA) gained 52 points to finish Tuesday’s trading session at a new record high close of 15,387 for a 0.34-percent advance. The Dow reached a new record intraday high of 15,434.50. The S&P 500 (NYSEARCA:SPY), meanwhile, finished with a 0.17-percent advance to a new record-high close at 1,669.16. The S&P reached a new record intraday high of 1,674.93. The big question at this point is whether the S&P 500 will reach 1,700.

The Nasdaq 100 (NASDAQ:QQQ) advanced 0.18 percent to 3,026. The Russell 2000 (NYSEARCA:IWM) advanced 0.08 percent to a new record-high close of 998.78. In other major markets, oil (NYSEARCA:USO) declined by 0.96 percent to close at $34.11.

On London’s ICE Futures Europe Exchange, July futures for Brent crude oil declined by $1.16, or 1.11 percent, to $103.64/bbl. (NYSEARCA:BNO). June gold futures declined by $10.10, or 0.73 percent, to $1,374.00 per ounce (NYSEARCA:GLD). Transports rolled forward on Tuesday, with the Dow Jones Transportation Index (NYSEARCA:IYT) advancing 0.06 percent.

European stocks retreated from their ongoing rally as widespread commentary focused on the impact of European Central Bank intervention on stock prices (NYSEARCA:VGK). However, British stocks continued to advance following upbeat earnings reports from a number of retailers, such as Burberry’s as well as an encouraging report from Société Générale, which gave a boost to the mining sector (NYSEARCA:EWU).

The Euro STOXX 50 Index finished with a 0.10-percent dip to 2,821 — remaining above its 50-day moving average of 2,691. So far, the STOXX 50 has been above 2,700 throughout the month of May (NYSEARCA:FEZ).

In Japan, stocks made a modest advance as the yen remained at approximately 102.5 per dollar (NYSEARCA:FXY). The plans announced by Prime Minister Shinzo Abe for what is referred to as the “third arrow” of his “Abenomics” program gave a boost to Kobe Steel and other stocks in the base metals sector. The Nikkei 225 Stock Average advanced 0.13 percent to 15,381 (NYSEARCA:EWJ).

On China’s Shanghai Stock Exchange, stocks advanced on gains led by the solar sector. The Shanghai Composite Index advanced 0.22 percent to 2,305 (NYSEARCA:FXI). Hong Kong’s Hang Seng Index declined 0.54 percent to 23,366 (NYSEARCA:EWH).

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Technical indicators reveal that the S&P 500 remains far above its 50-day moving average of 1,586 after closing at 1,669.16 — as bears continue to hope that we are watching the formation of a head-and-shoulders pattern, which would signal a decline. Its Relative Strength Index rose from 71.85 to 72.51 — remaining above the threshold level of 70, which most investors consider an “overbought” signal. Both the MACD and the signal line continue soaring above the zero line, suggesting the likelihood of a further advance.

For the day, most sectors were positive, although some typically “risk on” sectors, technology, energy and materials, were in the red. The healthcare sector led the group, with the only advance in excess of one percent.

Consumer Discretionary (NYSEARCA:XLY): +0.45 percent

Technology (NYSEARCA:XLK): -0.31 percent

Industrials (NYSEARCA:XLI): +0.14 percent

Materials (NYSEARCA:XLB): -0.12 percent

Energy (NYSEARCA:XLE): -0.20 percent

Financials (NYSEARCA:XLF): +0.25 percent

Utilities (NYSEARCA:XLU): +0.20 percent

Health Care (NYSEARCA:XLV): +1.09 percent

Consumer Staples (NYSEARCA:XLP): +0.10 percent

Bottom line: Investor enthusiasm sent the major stock indices to new record highs on Tuesday after two FOMC members explained that the Fed’s plans to taper back quantitative easing might not be on the front burner at present. Wednesday promises to be an exciting day with the release of the most recent FOMC meeting minutes and Dr. Bernanke’s testimony on Capitol Hill.

John Nyaradi is the author of The ETF Investing Premium Newsletter.

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