Positive Economic Data Doesn't Send Markets Into a Frenzy

Before you go, we thought you'd like these...
Before you go close icon

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Today, the Dow Jones Industrial Average ended the day up six points, or 0.04%, and now sits at 14,937. The S&P 500 rose 0.12%, and the Nasdaq increased by 0.27%. While these gains may not seem like a lot, when we really think about what happened today, they represent a big change on Wall Street.

If investors had received today's news just a month ago, we would have probably seen the markets tank. But, that wasn't the case today. Positive, but not great, economic data was released, mainly indicating that the jobs market is still strengthening, and that the U.S. economy surely looks to be back on track. In the recent past, fears and concern that the Federal Reserve would soon start tapering its bond buying program would have made investors nervous, and the major indexes would all fall. Now, however, investors may be realizing that if the Fed begins tapering, it means that the economy is strong enough to sustain itself and its current growth.

Due to the rise in Treasury bond yields today, it's clear that many investors believe that tapering is right around the corner. The five-year U.S. Treasury yield jumped from 1.74% yesterday, to 1.84% today. The 10 year moved from 2.9%, to 2.98%, while the 30 year rose from 3.8%, to 3.88%. Again, these may not seem like big moves, and they aren't when we consider the big picture; but for Treasuries to jump that high in just one day, well, that's something to talk about. And the most likely reason that happened is because investors don't want to get stuck holding Treasuries if the Fed slows its $85 billion bond-buying program, which will surely send bond yields higher across the board. 

Let's take a look at a few of the big winners today.

Shares of Microsoft  finally stopped hemorrhaging today, and rose 0.13%. Today's slight win comes after Microsoft fell 6.58% on Tuesday and Wednesday combined after the company announced that it had purchased Nokia's handset business and the rights to its patents for 10 years for $7.2 billion. Typically, after a company takes a massive one- or two-day slide, Wall Street realizes it overreacted, and the stock pops a few percent the following day. The fact that shares rose today is good, but by such a small amount means that investors don't think the decline was an overreaction, and that the acquisition is a bad idea.

My Foolish colleague Dan Dvombak noted earlier today that the Dow's banking stocks were all higher, due to the rising interest rates. Banks borrow money at the federal funds rate, which currently is 0.25%, and then lend it to people at a certain percentage higher than what U.S. Treasury bonds are yielding for the day. That difference from what the bank paid -- 0.25% -- and what they collected -- at least 2.98% on short-term loans and 3.88% on long-term loans -- is what the bank is making on that transaction. So, as interest rates continue to rise, and the Fed doesn't change its policies, the banks make more and more money. Shares of JPMorgan Chase ended the session higher by 0.46%, while Bank of America closed the day up 0.35%.

More Foolish insight

Have you missed out on the massive gains in bank stocks over the past few years? There's good news: It's not too late. Bargains of a lifetime are still available, but you need to know where to look. The Motley Fool's new report, "Finding the Next Bank Stock Home Run," will show you how and where to find these deals. It's completely free -- click here to get started.

The article Positive Economic Data Doesn't Send Markets Into a Frenzy originally appeared on Fool.com.

Fool contributor Matt Thalman owns shares of Bank of America, Microsoft, and JPMorgan Chase & Co.  Check back Monday through Friday as Matt explains what caused the Dow's winners and losers of the day, and every Saturday for a weekly recap. Follow Matt on Twitter @mthalman5513 The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America, JPMorgan Chase & Co., and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

People are Reading