Why the Dow's Defying Sequestration Fears


With the government's sequestration deadline just a couple days away, the markets are hardly batting an eye. The Dow Jones Industrial Average is surging despite the cloud of uncertainty hanging over Washington: The index is up a whopping 155 points, or 1.1%, to tip back over the 14,000 mark. Even with many nervous eyes watching as sequestration fast approaches, other economic indicators came out today that have investors cheering -- and forgetting all about what the politicians might do.

Bernanke and housing lift the markets
Pending home sales climbed 4.5% in January, according to the National Association of Realtors. This follows yesterday's good news that home prices rose in December. Together, this data is a positive sign that housing is continuing its recovery no matter what sequestration does. No doubt many investors are tired of the budget drama by this point, already worn out by the fiscal-cliff fight that cast a pall over the markets late last year.

Ben Bernanke's also helping markets rise today -- particularly the financial sector. The Federal Reserve chairman expressed his support for continuing his $85 billion per-month bond buyback stimulus program, reiterating that the latest round of quantitative easing will continue until unemployment falls. JPMorgan and Bank of America have ridden Bernanke's confidence higher, with shares of the bank stocks up 3.4% and 1.9%, respectively, to rank near the top of the Dow. More quantitative easing will only mean good things for these two stocks, sustaining a rise that has buoyed B of A in particular to spectacular recent gains.

Industrials are also having a strong day, with Caterpillar and United Technologies picking up 2.3% and 1.4%, respectively. Orders for durable goods excuding transportation rose nearly 2% in December -- the fifth straight month of gains and the largest jump in more than a year. Manufacturers like Caterpillar and UTC are gaining faith in the economic recovery and are free to invest with the fiscal cliff now a distant memory. While sequestration could slow down the industrial sector, investors and companies are largely ignoring the mandated and unpredictable cuts that are coming.

Boeing is also soaring today despite the ongoing problems with its grounded 787 Dreamliner. So far shares of the aerospace giant are up 2.6%, fueled somewhat by FAA chief Michael Huerta's expectation of an internal report on short-term fixes to the 787's battery problems sometime next week. While the FAA isn't ready to approve test flights of the aircraft yet, it's a small sign that the 787's saga is moving forward -- and one that investors have happily bought into today.

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Fool contributor Dan Carroll has no position in any stocks mentioned. The Motley Fool owns shares of Bank of America and JPMorgan Chase & Co. 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.

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