On Tuesday, markets dropped a few points to end almost flat as the trend of lackluster trading continued, displaying the lack of conviction among investors. Minutes of the Federal Open Market Committee’s meeting affirmed its plan to continue the economic stimulus program but the divide in the central bank raised concerns over the possibility of a change in monetary policy. Meanwhile, merger & acquisition news, coupled with Nasdaq OMX’s plans to rebalance the Nasdaq 100 index helped the tech sector gain significant points.

The Dow Jones Industrial Average declined for the first time in three days and shed 0.05% to close at 12,393.90. The Standard & Poor 500 (S&P 500) could not break the key technical resistance level for a second day and closed at 1,332.63 after dropping 0.02%. The Nasdaq Composite Index gained 0.07% and finished the day at 2,791.19. The fear gauge, CBOE Volatility Index fell below 17. Volumes remained tight with consolidated volumes on the New York Stock Exchange at 3.9 billion shares. Advancing stocks outnumbered decliners by ratio of 17:13 on the NYSE.
 
Investors were focused on what the Fed minutes had to offer to the economy as all as a decision on the continuation of the $600 bond-buying plan. Minutes from the Open Market Committee’s meeting, held on March 15, confirmed that the central bank will continue its monetary policy, which is believed to be a key economic stimulus measure. However, differences arose during the meeting creating speculation about possible changes to an easy money policy. Nonetheless, changes remain unlikely with the policy slated to stretch till June 30 this year. The committee was divided over the requirement to tighten credit in order to combat inflation. The economy continues to grow and some economists have opined that this justifies tighter monetary policy, while the rest believe that the Fed should proceed with its plans. According to the minutes: "Participants judged that the potential for more-widespread disruptions in oil production, and thus for a larger jump in energy prices, posed both downside risks to growth and upside risks to inflation. Several of them indicated, in light of recent developments, that the risks to their forecasts of inflation had shifted somewhat to the upside".
 
A report released by the Institute for Supply Management (ISM) said the non-manufacturing economy had declined on a monthly basis. The ISM said activity in the services sector declined to 57.3% in March compared to 59.7% in February, the index’s highest level in six years. The “magic-50” index suggests an expansion when the level is higher than 50 while anything below 50 represents an economic contraction. This is the sixteenth consecutive month that the level has remained above 50 and suggests the service side of the economy continues to grow.
 
In global news, the People's Bank of China raised interest rates by 25 basis points, the fourth time in six months that the central bank has taken such a step to control inflationary pressure. Crude prices dropped marginally on Tuesday and this hike might continue to weigh on oil demand over the next few months. The resumption of oil shipments from Libya and a decline in gasoline demand also helped crude prices move lower as the crude price for May delivery settled at $108.34 per barrel. Crude demand in China becomes a significant factor influencing crude prices. According to the U.S. Energy Information Administration, oil consumption in China is expected to touch 9.6 million barrels a day this year and will account for 37% of the projected world oil demand.
 
News of Texas Instruments Inc. (NYSE:TXN) acquiring National Semiconductor Corporation (NYSE:NSM) had already spread after the closing bell on Monday and the mergers and acquisitions activity yesterday helped the chip sector post higher gains. Following news of the $6.5 billion deal, Texas Instruments gained 1.7% and National Semiconductor soared 71.0% on Tuesday. Other chip stocks to gain were Intersil Corporation (NASDAQ:ISIL), Semtech Corp. (NASDAQ:SMTC) and ON Semiconductor Corp. (NASDAQ:ONNN) and they gained 8.4%, 7.5% and 2.7%, respectively.
 
The tech sector as a whole was also pushed higher after Nasdaq OMX announced its plans to rebalance the weight of the companies listed on the index. According to Nasdaq OMX Group, the rebalancing is to adjust the weights of index components corresponding to their market capitalizations. Following the rebalancing, 19 stocks will enjoy a larger share of the index while the rest will have to suffer a decline in percentages. The biggest gainer of the rebalancing will be Microsoft Corporation (NASDAQ:MSFT), while Apple Inc. (NASDAQ:AAPL) stands to lose the most as Nasdaq will shrink its weightage from 20.5% to 12.3%. Stocks of Microsoft Corporation gained 0.9% while Apple shed 0.7% over the last day. With a near 5% increase, Microsoft Corporation will have the largest percentage increase, raising the software’s major share to 8.3%. Other stocks to gain from the rebalancing included Intel Corporation (NASDAQ:INTC), Oracle Corp. (NASDAQ:ORCL), Google Inc. (NASDAQ:GOOG), Cisco Systems, Inc. (NASDAQ:CSCO), Dell Inc. (NASDAQ:DELL) and Yahoo! Inc. (NASDAQ:YHOO) and they will rise to 4.2%, 6.7%, 5.8%, 3.7%, 1.1% and 0.9%, respectively.
 
The basic materials sector enjoyed a cheerful day as traders expected higher price increases. Consequently, Alcoa, Inc., The Dow Chemical Company and Newmont Mining Corp. rose 2.8%, 1.3% and 4.4%, respectively.
 

 
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