NEW YORK (Reuters) – Investors were reluctant to make big bets ahead of two events that could dictate the stock market's direction for the rest of the year and beyond, leaving shares little changed on Monday.
The benchmark S&P; 500 index rose 12.9 percent since the start of September on hopes for Republican gains in Tuesday's elections and a Federal Reserve announcement of monetary easing on Wednesday. With those events imminent, trading volume was light and a 1 percent early rally was erased as investors turned cautious.
About 7.105 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below the year-to-date daily average of 8.73 billion. The CBOE Volatility index (.VIX), the market's favorite anxiety gauge, rose for the sixth straight day, a sign investors were boosting bets on further gyrations in the near term.
"We had a handful of positive macroeconomic data points, which contributed to the better tone in markets today, but the lack of follow-through underscores that Republican gains and an expansion of the Fed balance sheet are expected," said Barry Knapp, managing director of equity research at Barclays Capital in New York.
U.S. factory activity in October expanded and construction spending rose unexpectedly in September, reports showed. Other data showed manufacturing in China expanded at the fastest pace in six months in October.
Oil service stocks were among the leaders after Baker Hughes Inc (BHI.N) reported a third-quarter profit that beat expectations. The stock rose 5.2 percent to $48.73 while the Oil Service sector (.OSX) was up 0.7 percent.
M&T; Bank Corp (MTB.N) rose 4.5 percent to $78.12 after news it would buy Wilmington Trust Corp (WL.N) in a deal worth $351 million. Shares of Wilmington fell 42.5 percent to $4.09 and weighed on regional banks.
The Dow Jones industrial average (.DJI) was up 6.13 points, or 0.06 percent, at 11,124.62. The Standard & Poor's 500 Index (.SPX) was up 1.12 points, or 0.09 percent, at 1,184.38. The Nasdaq Composite Index (.IXIC) was down 2.57 points, or 0.10 percent, at 2,504.84.
If the election ends in the Republican Party taking control of the House, as polls indicate, the Obama administration's ability to enact its agenda would be in jeopardy. Among the main Obama-backed laws recently enacted were overhauling healthcare and financial regulation.
Traders said the energy sector could flourish after Republican gains as there will be less chance of increased regulation.
The Fed is expected to announce on Wednesday it will relaunch heavy bond buying to stimulate an anemic economy. Most analysts expect the size and the scope of asset purchases to be about $100 billion a month, starting with a plan to buy $500 billion in bonds between now and early 2011.
"If things don't come out as expected, there could be significant downside because there's so little liquidity in the markets," said Mike Holland, who oversees more than $4 billion as chairman of Holland & Co in New York. "Investors have priced in certain expected benefits from the Fed and elections, and what markets are squaring away now are any possible surprises."
On the Dow, Caterpillar (CAT.N) rose 0.9 percent to $79.27 while Exxon Mobil (XOM.N) climbed 0.7 percent to $66.95.
Weighing on the Nasdaq was Amazon.com (AMZN.O), down 1.6 percent at $162.62. The stock fell 2.3 percent last week but was up 32 percent from the beginning of September through the end of October.
JPMorgan Chase & Co (JPM.N) fell 0.6 percent to $37.42 after ProPublica, an investigative journalism website, said the Securities and Exchange Commission is investigating whether the bank adequately disclosed that a hedge fund helped select assets for a $1.1 billion package of subprime mortgages while also betting against portions of the deal.
Advancing stocks outnumbered declining ones on the NYSE by a ratio of 15 to 14, while on the Nasdaq, about 12 stocks fell for every seven that fell.
(Editing by Kenneth Barry)
