Dow: The Method to the Fed's Madness

Following the release of ADP's employment data, the S&P 500 (INDEX: ^GSPC) is unchanged, and the Dow (INDEX: ^DJI) is down 0.1% as of 9:50 a.m. EDT. According to ADP, U.S. companies added 162,000 jobs last month, against a consensus estimate of 143,000 based on a Reuters survey of economists. There are two things for investors to note here:

  • Short term: ADP's number is close enough to expectations that the Bureau of Labor Statistics' Friday nonfarm-payroll report is unlikely to surprise and significantly move the stock market.

  • Long term: That number is insufficient to make a dent in the unemployment rate (currently 8.1%).

QE works
I've been focusing on the risks linked to the Fed's policy of quantitative easing in this column recently, so it's time to give a bit of "airtime" to some of the genuine benefits. (Yes, Virginia, QE can have positive effects in the real economy.) The Mortgage Bankers Association said its index of mortgage application activity (refinancings and new-home demand) rose 16.6% in the week ended last Friday. The increase, driven by record-low mortgage rates, is heavily weighted toward refinancing applications (up 19.6%), rather than loan requests for new homes (up 3.9%). When homeowners refinance their mortgages, it puts money in their pocket, which they can then use to pay down other debt or purchase goods and services -- good things either way.

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