3 Reasons It Might Be a Good Idea to Ignore the Dow Today
This week is a big one for investors who have been looking for some economic data points to direct their investing. But with so much news coming later in the week, the Dow Jones Industrial Average may not be a reliable guide today as traders wait for more substantial news throughout the remainder of the week. As of 11:45 a.m. EDT, the index is down slightly with a 71-point loss. With more substantial data points yet to come, there are plenty of reasons to just let today's Dow moves go by the wayside.
Reason 1: Pending home sales
This morning's report of signed contracts for existing homes during the month of June showed a 0.4% decline. Though analysts had anticipated a 1% drop, the actual results still mark a fall from May's six-year high and could signal the impact of rising interest rates on sales. One of the more likely culprits, however, is the continued lack of inventory for buyers to choose from. As last week's existing homes sales report noted, the current inventory of existing homes stands at a 5.2-month supply -- well below the level that economists view as a good balance between supply and demand.
Both of the Dow bank component stocks are down this morning, with Bank of America and JPMorgan down more than 1% so far in trading. Though the losses may not be tied directly to this morning's sales report, housing data has been extremely important for bank investors lately. JPMorgan is the second-largest mortgage originator in the country, and B of A has been fervently trying to gain more ground in the market, so a decline in potential sales (read: loans) is a problem for the banks, which rely on interest revenue heavily.
Reason 2: More from Bernanke
Tomorrow, the Federal Open Market Committee will begin its two-day meeting to discuss the current monetary policy and any changes that they will make. Since the markets pay very close attention to these meetings and Ben Bernanke's announcement on Wednesday afternoon, there's sure to be a lot of movement in the coming days. The current speculation features a cutback in the Fed's bond purchasing by $20 billion starting in September -- though investors will have to wait till Wednesday to see if there's any merit to that plan.
As the Fed's stimulus policy changes, there will be an impact on firms with large investments, particularly in bonds. For insurers, this could pose a problem going forward since investment income is an essential part of their business operations. During its first-quarter earnings call, Allstate disclosed that it had altered its investing plan in order to acclimate to the current low-interest-rate environment, though it would be a sacrifice of higher returns later on. This type of change was not widely used, as insurers would have to make a series of adjustments should interest rates rise at a later time. Either way, investors should be aware of such adjustments as the environment transitions.
Reason 3: Employment data
Friday is the big day for labor market data, with the release of the Labor Department's Employment Situation report. Since labor market conditions are a huge part of the Fed's calculations for when to pull back on stimulus policies, Mr. Market has been keen to move dramatically when such reports are released.
Companies that are dependent on consumer spending also pay close attention to labor statistics, since more employed people could result in higher spending. Dow component American Express has been highly successful in large part because it caters to spenders in the high-income demographics. But as people within all segments of the population begin spending at higher rates, the credit card company and its peers will benefit from a broader revenue stream.
Today's not the day
If there was ever a day to take a break from watching the Dow, it's today. With so much information to come later in the week, any big decisions today may be wasted once investors start reacting to the news items listed above. And as a long-term investor, you know that any single day isn't worth sweating over, so you might want to consider taking the day off!
Millions of Americans have waited on the sidelines since the market meltdown in 2008 and 2009, too scared to invest and put their money at further risk. Yet those who've stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.
The article 3 Reasons It Might Be a Good Idea to Ignore the Dow Today originally appeared on Fool.com.
Fool contributor Jessica Alling has no position in any stocks mentioned. The Motley Fool recommends American Express and Bank of America. The Motley Fool owns shares of Bank of America and JPMorgan Chase. 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.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.