Financials Lead the Dow Jones as S&P 500 Hits New Record

American Express is leading the Dow Jones Industrial Average up following multiple positive reports on the housing market and better-than-expected consumer confidence numbers. As of 1:15 p.m. EDT the Dow was up 54 points to 16,660. The S&P 500 was up eight points to 1,909 after hitting an intraday record of 1911.6 earlier in the day.

Four U.S. economic releases are pushing stock markets higher today.





Durable-goods orders




Case-Shiller U.S. National Home Price Index

Q1 2014



FHFA home price index




Consumer confidence index




While both home price reports rose slightly more than expected, the surprise today was durable-goods orders, which grew 0.8% in April. Economists had expected durable-goods orders would drop in April after the pent-up demand from the harsh winter led to a big jump in March. However, a large rise in orders for defense equipment led durable-goods orders even higher. The positive economic reports are leading the stock market higher today, with financials leading the way.


Today's Dow leader is American Express, up 2.6%. American Express does better when its customers spend more money. As housing prices rise, there is a wealth effect that makes people feel wealthier and thus spend more money. Creating a wealth effect has been one of the goals of the Federal Reserve Open Market Committee's long-term asset purchases, as well as its zero-interest-rate policy. While housing prices have indeed risen, spending remains below the levels the Fed would like to see. The rising consumer confidence index also is a reason to believe that spending will continue to rise.

The big reason American Express is up today is that analysts from Morgan Stanley reiterated their "outperform" rating in a note to clients, as well as their $100 price target, as the firm sees American Express having numerous ways to grow. American Express CEO Ken Chenault agrees with them, saying there is a tremendous opportunity in the payments industry around the world: "We looked at where spending takes place. Outside of credit cards and charge cards, there's $25 trillion out there." This owes to the fact that 90% of the transactions in emerging markets are made using cash or checks.

As per-capita wealth and infrastructure expand in these markets, you can expect the payment space to grow, providing a runway for American Express, Visa, and MasterCard.

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Dan Dzombak can be found on Twitter @DanDzombak or on his Facebook page, DanDzombak. He has no position in any stocks mentioned. The Motley Fool recommends American Express and Goldman Sachs. The Motley Fool owns shares of 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.

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