Stocks Close Mostly Higher After Early Rally - U.S. Commentary

(RTTNews) - After turning in a strong performance last week, stocks saw some further upside at the start of trading on Monday. Buying interest waned not long after the open, however.

The tech-heavy Nasdaq subsequently pulled back into negative territory over the course of the session, although the Dow and the S&P 500 managed to hold on to notable gains.

While the Nasdaq edged down 4.34 points or 0.1 percent to 3,717.85, the Dow jumped 118.72 points or 0.8 percent to 15,494.78 and the S&P 500 climbed 9.60 points or 0.6 percent to 1,697.60.

The initial strength on Wall Street came on the heels of news that former Treasury Secretary Larry Summers has withdrawn his name from consideration to replace Federal Reserve Chairman Ben Bernanke amid concerns about a potentially acrimonious confirmation process.

The news generated early buying interest, as Summers was seen as likely to take a more hawkish approach to monetary policy.

Summers' decision was seen by some as paving the way for Fed Vice Chair Janet Yellen, who is perceived to be the most dovish candidate.

However, Paul Ashworth, Chief U.S. Economist at Capital Economics, said Yellen is probably the favorite but not the near-certainty that many will proclaim her to be.

"Nominating Yellen now could make Obama look weak, kowtowing to the Democrats who have been openly campaigning for her," Ashworth said.

"Instead, it's possible that there will now be a delay in the nomination process, while the administration seeks a new candidate," he added. "We know Obama has already interviewed Ex-Fed Vice Chair Donald Kohn and we wouldn't rule out the administration seeking to change Tim Geithner's mind."

Lingering uncertainty about the outlook for monetary policy contributed to the subsequent pullback by stocks, with the Fed due to begin a two-day meeting on Tuesday.

Many economists expect the Fed to announce plans to begin scaling back its asset purchase program following the completion of the meeting.

On the economic front, the New York Federal Reserve released a report showing that regional manufacturing activity unexpectedly expanded at a slower pace in the month of September.

A separate report from the Federal Reserve showed that industrial production rose by slightly less than expected in the month of August.

Sector News

While most of the major sectors ended the session well off their best levels of the day, considerable strength remained visible among health insurance stocks. The Morgan Stanley Healthcare Payor Index rose by 1.5 percent, reaching a new record closing high.

Health Net (HNT) and Molina Healthcare (MOH) turned in two of the health insurance sector's best performances, advancing by 3.6 percent and 3.4 percent, respectively.

Housing stocks gave back some ground but also held on to strong gains, driving the Philadelphia Housing Sector Index up by 1.4 percent. The gain lifted the index to its best closing level in over a month.

Defense, transportation, and commercial real estate stocks also turned in strong performances, while most of the other major sectors ended the day showing only modest moves.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher on Monday, although the Japanese markets were closed for a public holiday. Hong Kong's Hang Seng Index surged up by 1.5 percent, while Australia's All Ordinaries Index rose by 0.5 percent.

The major European markets also moved to the upside on the day. While the U.K.'s FTSE 100 Index rose by 0.6 percent, the French CAC 40 Index advanced by 0.9 percent and the German DAX Index jumped by 1.2 percent.

In the bond market, treasuries gave back ground after rising sharply in early trading but still ended the day modestly higher. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, ended the day down by 2.4 basis points at 2.874 percent after hitting a low of 2.777 percent.

Looking Ahead

While reports on consumer prices and homebuilder confidence may attract some attention on Tuesday, trading activity is likely to be somewhat subdued as the Federal Reserve's two-day monetary policy meeting gets underway.