Investors Avoid Taper Bets

The major stock indices dipped on Tuesday, as investors avoided betting on whether the Fed would – or would not – taper its bond purchases.

Tuesday’s trading session demonstrated an absence of betting as to whether Wednesday’s FOMC Statement would bring the announcement that the Fed would finally commence the long-awaited taper of its bond purchases. Investors avoided taking significant short positions as they also failed to run-up stock prices on the eve of Ben Bernanke’s press conference at the conclusion of the FOMC monetary policy meeting. The stock market failed to respond to a prediction from PIMCO’s Mohamed El-Erian that he anticipated a 60 percent likelihood that the commencement of the taper would be announced on Wednesday.

There has been a good deal of speculation that after Wednesday’s meeting, Dr. Bernanke would announce that the taper would begin in March. Such an approach would be consistent with the Fed’s recent transparency initiative, while mitigating whatever turbulence the tapering agenda would bring to the stock market.

The Dow Jones Industrial Average (DIA) lost 9 points to finish Tuesday’s trading session at 15,875 for a 0.06 percent retreat. The S&P 500 (SPY) declined 0.31 percent to close at 1,781.

The Nasdaq 100 (QQQ) dropped 0.19 percent to finish at 3,469. The Russell 2000 (IWM) dipped 0.09 percent to end the day at 1,118.

In other major markets, oil (USO) declined 0.20 percent to close at $34.87.

On London’s ICE Futures Europe Exchange, February futures for Brent crude oil declined $1.10 (1.01 percent) to $108.31/bbl. (BNO).

February gold futures declined $14.10 (1.13 percent) to $1,230.30 per ounce (GLD).

Transports ran out of gas on Tuesday, as the Dow Jones Transportation Average (IYT) fell 0.52 percent.

In Japan, the exchange rate for the yen continued to be the dominant factor in stock market activity. Japanese stocks advanced as the yen weakened to 102.94 per dollar just before Tuesday’s closing bell in Tokyo. A weaker yen causes Japanese exports to be more competitively priced in foreign markets (FXY). The Nikkei 225 Stock Average surged 0.83 percent to 15,278 (EWJ).

Stocks continued to decline in China as a result of Monday’s disappointing HSBC Flash China Manufacturing PMI for December, which declined to 50.5 from November’s 50.8. A reading above 50 indicates expansion. The HSBC Flash China Manufacturing Output Index dropped to 51.8 from November’s 52.2. The Shanghai Composite Index dropped 0.45 percent to 2,151 (FXI). Hong Kong’s Hang Seng Index declined 0.20 percent to end the day at 23,069 (EWH).

In Europe, stocks declined after Eurostat reported that monthly inflation declined 0.1 percent in November. Although the annual inflation rate for the Eurozone rose to 0.9 percent from October’s 0.7 percent, the current rate is significantly below the 2.0 percent target set by the European Central Bank. An inflation rate below 1.0 percent is seen as a signal of a significant deflation threat. In November of 2012 the annual inflation rate for the region was 2.2 percent.

The Euro STOXX 50 Index finished Tuesday’s session with a 1.24 percent drop to 2,941 – falling further below its 50-day moving average of 3,021. Its Relative Strength Index is 40.19 (FEZ).

Technical indicators revealed that the S&P 500 remained above its 50-day moving average of 1,765 after declining 0.31 percent to finish Tuesday’s session at 1,781. Its Relative Strength Index fell from 51.38 to 48.74. The MACD is on a downward trajectory, which would suggest that the S&P could continue its decline during the immediate future.

On Tuesday, all sectors declined except for the materials sector, which climbed 0.66 percent.

Consumer Discretionary (XLY): -0.26%

Technology: (XLK): -0.03%

Industrials (XLI): -0.04%

Materials: (XLB): +0.66%

Energy (XLE): -0.57%

Financials: (XLF): -0.66%

Utilities (XLU): -0.19%

Health Care: (XLV): -0.48%

Consumer Staples (XLP): -0.47%

Bottom line: Investors demonstrated a reluctance to bet – one way or the other – on whether Ben Bernanke would announce a “Dectaper” at Wednesday’s conclusion of the FOMC monetary policy conference.

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