Traders have come to expect the unexpected, but Tuesday's session was pretty much muddling along as advertised -- until about 3 p.m. EST, that is. In the final hour of trading, a decidedly listless advance took a marked turn higher, evoking the old saying: "Never short a dull market." When all was said and done, the Dow Jones Industrial Average was up 1.2% to 8574.26 after having traded as high as 8578.99. The S&P 500 was up 1.4% to 904.41, closing a fraction below its apex, while the Nasdaq Composite was higher by 1.7% to 1390.50 after having traded as high as 1397.80. As some predicted, stock proxies rallied early in the session following
Monday's thrashing , the sixth decline in the past seven trading days. As was more uniformly anticipated, the Federal Reserve left the fed funds rate unchanged at 1.25%, and said little to indicate its view of the economy has changed since its last policy meeting. "The Committee continues to believe that its accommodative stance of monetary policy, coupled with still robust underlying growth in productivity, is providing important ongoing support to economic activity," the Federal Open Market Committee's statement read. "The limited number of incoming economic indicators since the November meeting, taken together, are not inconsistent with the economy working its way through its current soft spot." (In other words, the Fed isn't too worried about Friday's dour employment report, at least not publicly.) Stock proxies rallied in the aftermath of the Fed's announcement at 2:15 p.m. EST, but gains moderated soon thereafter before a late-day rally pushed proxies to session highs. Overall, the market's reaction to the FOMC was limited. Even the movement of U.S. Treasuries was relatively constrained, with the price of the benchmark 10-year note ending down 4/32 to 99 19/32, its yield rising to 4.05%.
Similarly, traders reported limited activity due to news President Bush nominated Donaldson Lufkin & Jenrette co-founder William Donaldson to be the next chairman of the Securities and Exchange Commission. Nor did rumblings about political obstacles to the presumptive appointment of former Goldman Sachs co-head Stephen Friedman as White House economic policy adviser materially affect trading. It was another relatively quiet trading session. In NYSE activity, 1.26 billion shares were exchanged, the sixth-straight session below the six-month average, according to Bloomberg. In Nasdaq trading, nearly 1.5 billion shares traded. The gains, particularly the S&P rallying back above 900, indicate to optimists that the decline that began the day after Thanksgiving has run its course. Bulls hope the much-anticipated year-end rally has gotten under way, owing to confidence in President Bush's new economic team and stimulus package, or merely due to seasonal factors. However, there certainly remains a healthy dose of skepticism about the market's fate among many participants. "Our tactic remains one of holding our existing short positions, waiting for the completion of the next short-term advance phase for a chance to add more short positions," Phil Erlanger of Erlanger's Squeeze Play, and formerly head of technical analysis at Fidelity Investments, commented Tuesday morning. Erlanger observed the CBOE Nasdaq Volatility Index rose just 1.3% Monday even as the Nasdaq 100 tumbled 4.8%. This is evidence of too much complacency and a lack of fear among investors, he wrote, arguing there has also been, in general, too much call-buying. "We expect to see more put activity before the next meaningful low," he wrote. "Until such time, short-term advance phases will be unrewarding and diminutive." On Tuesday, the VXN fell 2.3% while the NDX gained 1.8%. Meanwhile, the CBOE Market Volatility Index (or VIX) shed 8.1% to 32.67 and the CBOE equity only put/call ratio fell to 70% from 72% Monday and vs. reading in the high 80%-low 90% range much of last week.