Dow Creeps Higher Despite Weak Economic Data

Stocks inched higher today despite poor economic data as the Dow Jones Industrial Average finished up 22 points, or 0.15%. The bizarre logic seemed to be that the negative indicators would encourage the Fed to keep its current stimulus measures in place longer than it has indicated. Monetary policy has been at front and center for investors recently after Fed members signaled that they may take steps to reduce the $85 billion bond-buying program that's been in place for more than a year.

Among the reports missing estimates today was initial unemployment claims, which rose to 354,000 from 344,000 the week before. Economists had expected a drop to 340,000. While the rise in claims is a negative sign, new jobless claims tend to be volatile and analysts prefer to look at the four-week moving average, which sits at 347,250.

Then, the second estimate of first-quarter GDP was revised down 10 basis points to 2.4%. The new figure will be revised one more time, at the end of June, but is still much higher than the 0.4% growth seen in the fourth quarter of 2012. The Congressional Budget Office has projected GDP growth of just 1.4% this year, in part due to cuts to the federal budget from sequestration.

Finally, pending home sales also disappointed, increasing just 0.3% in April on expectations of a 1.5% gain. Lower-than-expected sales of existing homes could be a result of low inventory and therefore a driver of new-home construction. Housing data has been erratic recently, but overall the trajectory has been strong over the last several months.

Bank of America led all Dow stocks today, gaining 2.6% though the increase was not driven by any particular piece of news, just several smaller items. The belief that the Fed will continue pumping money into the economy favors B of A and other banks, as they are more sensitive to the macroeconomic environment than the average stock. Also, the recent increase in treasury yields gives the bank an opportunity to increase its net interest margin as the yield curve steepens and it can lend at higher rates. Finally, CEO Brian Moynihan said at a conference today that has essentially finished selling its mortgage-servicing rights, an important step in recapitalizing and shedding non-core business segments.

On the other side of the spectrum, Disney was down 2.5% as CFO Jay Rasulo said at an event that previous downside comments had not been taken into account in Wall Street estimates. Specifically, Rasulo said that Iron Man 3 will gross about $300 million less than The Avengers did last year in the same quarter and also that marketing costs for The Lone Ranger will put a $150 million dent in operating income this quarter.

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