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A rather directionless morning of trading on Wall Street—the major U.S. equity indexes bounced around the breakeven mark mostly in negative territory—turned nicely positive in the early afternoon hours, as investors responded to some positive news from Europe (discussed below) and comments from the Federal Reserve’s Open Market Committee (released shortly after 2:00 P.M. EST) that it will take a wait-and-see approach with regards to monetary policy and could possibly consider new monetary initiatives to stimulate the economy—which is normally good for equities. However, the market was unable to hold those gains and some late-day selling pushed the indexes notably into the minus column, making it three straight victories for the bears.

With regards to the ongoing financial crisis in the euro zone, traders took some comfort in news that Italy promised to fast track austerity measures to avoid becoming the next European nation to need help to avoid defaulting on its debt obligations—Greece is still struggling to get its house in order. A successful auction of new Italian government bonds also helped reassure nervous investors that the nation will be able to manage on its own without the help of a rescue package from the European Union. The news from Italy helped pare the losses in the European bourses earlier today and lent some interim-day support to trading on these shores, as well.

As noted, Federal Reserve officials adopted a wait-and-see approach during last month's policy meeting, though opinions differed over what the next step would likely be given the combination of rising inflation and a weakening economy. Some Federal Reserve governors appear ready to provide more monetary policy easing if the recovery is too soft to cut the lofty unemployment rate and if inflation eases as expected. The Fed also lowered its forecast on the economy this year, predicting the gross domestic product (GDP) will grow 2.7% to 2.9%--it previously projected GDP would rise 3.1% to 3.3%. The lead bank also predicted a higher jobless rate and blamed its more bearish outlook on higher commodity prices, elevated unemployment, weak consumer spending, the housing sector woes, and Japan's earthquake. All in all, it was a far from uplifting synopsis of the U.S. economy.

Meanwhile, the corporate earnings season did not get off to a roaring start in the last 24 hours. After yesterday’s market close, aluminum maker Alcoa (AA - Free Alcoa Stock Report) reported solid sales figures, but earnings came in a bit below expectations. And as we noted in our midday report, a few technology companies, including Microchip (MCHP) and Novellus (NVLS) lowered their expectations for the current year—shares of both technology concerns were down on those reports, with Novellus falling by about 11%. Not surprisingly, the technology group was the worst performing of the 12 major sectors. Other notable laggards included the conglomerate, transportation and capital goods groups.

The strength of the dollar versus several foreign currencies—the greenback is at a multi-month high versus the euro—did not have an adverse effect on the commodities market. In fact, most of the agricultural and soft (i.e., cocoa, coffee, sugar, cotton, and orange) futures were up nicely today. Livestock contracts, though, suffered as traders worried what higher agricultural prices would have on animal feed costs, which are already at elevated levels. However, this thinking did not cause investors to shy away from meat processors Smithfield Foods (SFD), Tyson Foods (TSN), Hormel Foods (HRL), and Sanderson Farms (SAFM). Meanwhile, both gold and oil futures were up today, with the latter rising on comments by OPEC and the Energy Information Administration that the global appetite for oil will grow to record levels this year despite an uneven global economic recovery. Shares of Dow-30 components Exxon Mobil (XOM - Free Exxon Stock Report) and Chevron (CVN - Free Chevron Stock Report) were both higher today.

The higher price of gold, along with a slight retreat in the 10-year Treasury bond yield also signified that investors are not ready to abandon their “flight-to-safety” strategy, which has been in vogue the last few sessions. Our sense is that absent some surprisingly good earnings or economic news over the next few days, this strategy will continue, especially with the messy debt situation in Europe right now.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.