Investors Stay in Defensive Mood

Stocks made a moderate retreat on Tuesday as increasing talk of a December taper of the Fed’s bond purchases worried investors.

With the confirmation hearing on President Obama’s Federal Reserve Char nominee, Janet Yellen, set for Thursday, widespread discussion as to whether the Fed should begin tapering its bond purchases kept investors in a more defensive mood, sending stocks lower. Dallas FedHead Richard Fisher’s speech in Australia drew plenty of attention, because he emphasized that the Fed’s accommodative polices become more risky as they continue. In a televised interview, Atlanta FedHead Dennis Lockhart remarked that tapering will likely be discussed at the December FOMC meeting. Neither Fisher nor Lockhart are currently voting members of the FOMC, although Richard Fisher will have FOMC voting power in 2014.

The Dow Jones Industrial Average (NYSEARCA:DIA) lost 32 points to finish Tuesday’s trading session at 15,750 for a 0.21 percent decline. The S&P 500 (NYSEARCA:SPY) declined 0.24 percent to 1,767. The Nasdaq 100 (NASDAQ:QQQ) advanced 0.07 percent to finish at 3,365. The Russell 2000 (NYSEARCA:IWM) fell 0.39 percent to 1,074.

In other major markets, oil (NYSEARCA:USO) sank 1.81 percent to close at $33.64. On London’s ICE Futures Europe Exchange, December futures for Brent crude oil declined 41 cents (0.39 percent) to $105.77/bbl. (NYSEARCA:BNO). December gold futures declined $13.90 (1.09 percent) to $1,267.20 per ounce (NYSEARCA:GLD). Transports were up there dodging asteroids on Tuesday, with the Dow Jones Transportation Average (NYSEARCA:IYT) climbing 0.75 percent.

In Japan, the exchange rate for the yen remained as the dominant factor in stock market activity. Japanese stocks soared on Tuesday as the yen weakened. A weaker yen causes Japanese exports to be more competitively priced in foreign markets. The exchange rate for the yen weakened to 99.63 per dollar just before the closing bell in Tokyo (NYSEARCA:FXY). The Nikkei 225 Stock Average skyrocketed 2.23 percent to 14,588 (NYSEARCA:EWJ).

In China, consumer staples led the advance on the mainland, as investors anticipated encouraging news at the conclusion of the Communist Party meeting. The Shanghai Composite Index surged 0.82 percent to 2,126 (NYSEARCA:FXI). On the other hand, in Hong Kong, dread about financial reforms resulting from the four-day meeting caused the financial sector to lead a stock market decline. Hong Kong’s Hang Seng Index declined 0.73 percent to end the day at 22,901 (NYSEARCA:EWH).

Stocks declined in Europe in the wake of a batch of disappointing earnings reports from a number of companies, including Infineon Technologies. The Euro STOXX 50 Index finished Tuesday’s session with a 0.59 percent decline to 3,034 — remaining above its 50-day moving average of 2,954. Its Relative Strength Index is 55.23 (NYSEARCA:FEZ).

Technical indicators revealed that the S&P 500 climbed further above its 50-day moving average of 1,713 after finishing Tuesday’s session with a 0.24 percent decline to 1,767. Its Relative Strength Index fell from 61.72 to 59.77. The MACD is again on a declining trajectory, suggesting that the S&P 500 could make a further retreat in the immediate future.

On Tuesday, only three sectors finished in positive territory and six sectors finished in the red.

Consumer Discretionary (NYSEARCA:XLY): -0.09 percent
Technology: (NYSEARCA:XLK): +0.29 percent
Industrials (NYSEARCA:XLI): +0.12 percent
Materials: (NYSEARCA:XLB): -0.34 percent
Energy (NYSEARCA:XLE): -0.95 percent
Financials: (NYSEARCA:XLF): -0.91 percent
Utilities (NYSEARCA:XLU): -0.85 percent
Health Care: (NYSEARCA:XLV): -0.06 percent
Consumer Staples (NYSEARCA:XLP): +0.24 percent

Bottom line: Stocks made a slight retreat on Tuesday as investors became spooked by increased discussion of the need for the Fed to begin tapering its bond purchases.

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

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