Markets Finally Leave Taper-Phobia Behind

On Tuesday, the stock market finally returned to where it was before Ben Bernanke disclosed the Fed’s timetable for ending quantitative easing.

On Tuesday, the stock market finally recovered from its post-FOMC slump. On June 18, the day before Ben Bernanke’s post-FOMC meeting press conference, wherein he announced the tentative timetable for the Fed’s phase-out of quantitative easing, the S&P 500 (NYSEARCA:SPY) closed at 1,651. Since that event, the S&P 500 did not close above that level until Tuesday, when it finished the session at 1,652. The Dow Jones Industrial Average (NYSEARCA:DIA) finished Tuesday’s session just 18 points below its June 18 closing level of 15,318, making that the number to watch when the bell rings at 4:00 on Wednesday.

Despite the fact that the ten-year Treasury yield still remains just above 2.6 percent, three of the four biggest gainers on the S&P 500 at Tuesday’s closing bell were homebuilder stocks. DR Horton (NYSEARCA:DHI) jumped 7.55 percent; Lennar (NYSEARCA:LEN) soared 5.93 percent, and PulteGroup (NYSEARCA:PHM) jumped 5.48 percent. Concern about rising mortgage rates has plagued homebuilder stocks since Dr. Bernanke announced the phase-out of quantitative easing on June 19. The SPDR S&P Homebuilders ETF (NYSEARCA:XHB) closed above $30 per share on Tuesday for the first time since June 18, skyrocketing 2.77 percent to close at $30.03.

The Dow gained 75 points to finish Tuesday’s trading session at 15,300 for a 0.50 percent advance. The S&P 500 climbed 0.72 percent to close at 1,652. The Nasdaq 100 (NASDAQ:QQQ) advanced 0.61 percent to finish at 2,984. The Russell 2000 (NYSEARCA:IWM) surged 0.87 percent to end the day at a new record-high closing level of 1,018.05. In other major markets, oil (NYSEARCA:USO) jumped 0.96 percent to close at $36.76.

On London’s ICE Futures Europe Exchange, September futures for Brent crude oil advanced by 36 cents (0.34 percent) to $107.02/bbl. (NYSEARCA:BNO). August Gold Futures advanced by $12.50 (1.01 percent) to $1,247.40 per ounce (NYSEARCA:GLD). Transports were in hyperdrive on Tuesday, with the Dow Jones Transportation Average (NYSEARCA:IYT) accelerating 2.38 percent.

In Japan, stocks soared as the yen weakened to as low as 101.23 per dollar. A weaker yen causes Japanese exports to be more competitively priced in foreign markets (NYSEARCA:FXY). The Nikkei 225 Stock Average skyrocketed 2.58 percent to 14,472 (NYSEARCA:EWJ).

In China, stocks managed to advance on Tuesday after the government’s release of disappointing inflation data was already priced-into the market on Monday. Economists expected to see that consumer prices increased by 2.5 percent in June (on a year-over-year basis) compared with May’s 2.1 percent increase. The actual report brought worse news: Consumer prices rose 2.7 percent. The additional inflation restricts the central bank’s ability to use monetary stimulus. The Shanghai Composite Index advanced 0.37 percent to close at 1,965 (NYSEARCA:FXI). Hong Kong’s Hang Seng Index climbed 0.29 percent to finish the session at 20,683 (NYSEARCA:EWH).

European stocks continued their voyage to outer space on Tuesday after the Eurogroup finance ministers agreed to extend another €6.8 billion loan to Greece (NYSEARCA:VGK). The bailout is conditioned on the agreement of the Greek government to cut 15,000 civil service jobs and to put even more public workers on reduced wages ahead of potential layoffs. This will obviously not be received as good news to a country which has a 27-percent unemployment rate.

The Euro STOXX 50 Index finished Tuesday’s session with a 0.50 percent advance to 2,664 — remaining above its 200-day moving average of 2,636. Its Relative Strength Index is 51.91 (NYSEARCA:FEZ).

Technical indicators reveal that the S&P 500 continued rising above its 50-day moving average of 1,628 after closing at 1,652. Its Relative Strength Index increased from 56.85 to 59.96. The MACD has now crossed above the zero line, suggesting a continued advance.

For Tuesday, all sectors were in positive territory with the materials sector and the industrial sector taking the lead, with gains of 1.54 percent and 1.42 percent, respectively. The healthcare sector was the laggard, advancing by 0.28 percent.

Consumer Discretionary (NYSEARCA:XLY): +0.39 percent
Technology (NYSEARCA:XLK): +0.39 percent
Industrials (NYSEARCA:XLI): +1.42 percent
Materials (NYSEARCA:XLB): +1.54 percent
Energy (NYSEARCA:XLE): +1.02 percent
Financials (NYSEARCA:XLF): +0.85 percent
Utilities (NYSEARCA:XLU): +0.72 percent
Health Care (NYSEARCA:XLV): +0.28 percent
Consumer Staples (NYSEARCA:XLP): +0.74 percent

Bottom line: On Tuesday, the stock market finally began to pull out of its taper-phobia rut as homebuilder stocks led the S&P 500 to close at its highest level since Ben Bernanke’s June 19 announcement of the Fed’s timetable for phasing-out quantitative easing.

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