The Dow and S&P Jump: Bright Spots Emerge in the U.S.


Markets continue to shake off some steep losses from late last week. The Dow Jones Industrial Average (INDEX: ^DJI) is up 0.46% in a particularly broad rally in which 26 of its 30 components are seeing gains. Likewise, the S&P 500 (INDEX: ^GSPC) is up 0.70% while the Nasdaq (INDEX: ^IXIC) has seen a 0.62% rise. Gains follow a pretty strong day in Europe, where London's FTSE 100 has seen a 1.39% rally.

The seesaw of momentum
With European gains outpacing those in America, it's pretty clear that the seesaw in Europe has moved back in the bullish direction. The biggest piece of news on the continent today was Italy selling 185-day treasuries for 2.96%. That's up from 2.10% at the end of May, according to reports from Bloomberg. Yesterday Italy had sold 2014 debt yielding 4.71%, which was up from a 4.04% sale at the end of May.

Italy's borrowing costs remain below Spain's. Its 10-year bonds are yielding just north of 6% while Spain has been battling to keep its 10-years at a yield below 7%. Still, that's a wide gap over comparable yields on German debt. While Spain has gathered most the attention because of its grimmer immediate financial situation, Italy's economy is nearly 50% larger than Spain's and facing some imminent fiscal problems of its own if there's continued inaction in the eurozone.

U.S. data on the rise
Looking beyond Europe, data out of the U.S. shows more signs that the housing market continues to improve. The number of homebuyers signing contracts on existing homes jumped in May and reached its highest point since April 2010. The situation continues to be helped by purchases of "investment property" that's often rented.

A second piece of good data out of the U.S. was a rise in durable goods. That's a relief, since booking had faltered in recent months. As we head into another round of earnings in July, investors will be paying close attention to whether companies are retrenching in the face of global uncertainty (as they did last summer) or sticking to projections. The fact durable bookings rose shows some evidence of near-term optimism.

In the long-term, I'd encourage investors to add data point like today to their overall view of the market, but remember not to get too hung up on any day-to-day movements. As I mentioned earlier, the situation in Europe is fluid. The likely outcome is to see more pessimism as countries muddle about until optimism takes over when an eventual deal is hammered out. Then, once a deal is hammered out, it still remains to be seen whether that fixes some of the continuing structural problems of the eurozone.

No one can predict the timing of these events, so the best course of action is to do your homework and invest in high-quality companies that will deliver over a longer time frame.

Take the long-term view
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