Market Summary

Stocks seesawed in trading Tuesday, a day after the major indices saw their largest percentage drop since April 20th. Traders got some direction in the morning after existing home sales rose 2.4% in May to a seasonally adjusted annual pace of 4.77 million, up from a downwardly revised rate of 4.66 million in April. However, the results were below the 2.8% increase forecasted by economists. The report showed however, that consumers are demanding lower prices before they nibble back into real estate. One of every three sales last month was a result of a foreclosure, dragging the median price of an existing home 16.8% lower at $173,000.

By the closing bell, stocks stood with a mixed finish ahead of Wednesday’s FOMC announcement. Equities will continue to falter as long as signs of economic improvement are mild to flat, compared to the drastic improvement hat led the market up over 30% since March. The Dow Jones industrial average fell 16.10, or 0.2 percent, to 8,322.91. The Standard & Poor’s 500 index rose 2.06, or 0.2 percent, to 895.10, and the Nasdaq composite index fell 1.27, or 0.1 percent, to 1,764.92. The Russell 2000 index of smaller companies fell 3.04, or 0.6 percent, to 489.77.

Yields continued their march downward as prices on government debt rose. The yield is a good indication of investor confidence within the equity market. The yield on the 10 year U.S. treasury fell 4 basis points to 3.65%.

General Motors Adds to Unemployment Rolls

The company, still in bankruptcy, announced the removal of 4,000 white collar jobs from the company’s workforce. The move is in effort to help downsize the one time leader in automotive sales. GM started 2009 with about 29,650 workers; with plans on having a labor force of 23,500 by year’s end.

Whatcha Gonna Do?

All eyes are on the Federal Reserve, as the FOMC concludes its 2 day meeting with their announcement on open market operations Wednesday. The fed needs to choose their words very carefully, as the market is at a very fragile stage. The last thing they want to do is trample over the “green shoots” of economic recovery. The bond market is very concerned about inflation, and any policy tools the fed may use to help inject liquidity and lower borrowing costs through their balance sheet may have a negative effect. Raising rates at this stage is the last possible option. I suspect a very soft stance on inflation, as deflationary pressures still exist, but it would make my day if they set an inflation target, and therefore a nominal GDP target. It is terrific that we have leveled off after falling off of a cliff since the fall of Lehman Brothers, however if policy isn’t handled correctly, flat growth is a possibility.