Dow's Fireworks-like Gains Go Up in Smoke

Dow's Fireworks-like Gains Go Up in Smoke

Early in trading, it was looking like the day off for yesterday's Independence Day holiday had given the market some much-needed rest. The Dow Jones Industrial Average shot up like a firework by over 100 points. But now that traders have gotten settled in, the index has lost most of that exciting momentum -- sitting at a 15-point gain as of 11:30 a.m. EDT. With just hours left in the trading week and plenty of news to influence investors one way or the other, don't expect a smooth ride into the close this afternoon.

The situation
Though this week was full of employment data, most investors have been anticipating this morning's Employment Situation report from the Bureau of Labor Statistics. Well, it didn't disappoint. Over 200,000 new jobs were added in the private sector in June, marking the 40th consecutive month of job additions. Year to date, the economy has added over 1.2 million new jobs, and last month was the second month of higher labor market participation.

This news is great for the recovering economy, which has needed more hiring in addition to the slowing of layoffs in order to fully gain momentum. But with the Fed specifically targeting improvements in the labor market, some investors may see this week's positive jobs data as a sign that tapering of the current stimulus policy is near -- this may be the reason that the Dow is struggling to keep its gains from earlier in trading.

For those investors who are solely concerned with the Fed's next step (not highly recommended for Foolish investors), there was some more "good" news for you in this morning's report. Though new-job creation has pressed onward, the overall unemployment rate remained steady at 7.6%. This keeps the Fed's target of 6.5% well below the job market's current outlook and wards off any pressing fears of the nearing cutbacks.

The Dow's financial components are the true winners this morning, as Bank of America, JPMorgan, and American Express lead the index's gainers. Better employment figures work directly in favor for these firms, as more income leads to more spending, borrowing, and saving. American Express has already been reaping the benefits of its cardholders' higher-income status, since that demographic has been increasing its spending in the last six months. Both Bank of America and JPMorgan offer credit cards, but have a wider spread of the market and can't claim the same benefit as AmEx.

Of course, the steady unemployment rate also points to continued low interest rates, which will continue to drive new mortgage business to the banks as homebuyers race to get new loans at historically low rates. And as inventory of homes continues to fall, prices will rise with the demand. Though Wells Fargo has been the king of new mortgage originations, both B of A and JPMorgan will seek to claim larger slices of the market as the new business enters the scene. For bank investors, the scene that unfolds will show the strengths of the individual banks at a time when the conditions are right for new opportunities.

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Fool contributor Jessica Alling has no position in any stocks mentioned. The Motley Fool recommends American Express, Bank of America, and Wells Fargo. The Motley Fool owns shares of Bank of America, JPMorgan Chase, and Wells Fargo. 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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