Why the Dow Rose Today

The Dow Jones Industrial Average (INDEX: ^DJI  ) finished the day up after Federal Reserve Chairman Ben Bernanke led investors to believe stimulus measures will continue.

Index

Change

Ending Value

Dow Jones Industrial Average +160.90 [1.23%] 13,241.63
S&P 500 (INDEX: ^GSPC  ) +19.40 [1.39%] 1,416.51

Speaking at the National Association for Business Economics Annual Conference, Bernanke acknowledged that the jobs market was improving but said it is far from a normal level. He highlighted long-term unemployment as a key problem our economy faces and believes it's a cyclical problem rather than a structural one. That's an important distinction, as a structural problem would suggest there is a gap between the jobs employers are offering and the skills workers have. Widespread retraining and other education programs would be important to solving the crisis.

A cyclical problem suggests that long-term unemployment is part of the business cycle and will be corrected by a strengthening of the economy. In this regard, Bernanke stated, "further significant improvements in the unemployment rate will likely require a more rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies."

By "accommodative policies," Bernanke is referring to the kind of stimulus measures the government has been taking to boost the economy, including promising to hold the federal funds rate near zero until 2014. In response, investors bid up the Dow more than 100 points in early trading, and it remained there the rest of the day.

Top winner
Twenty-nine of 30 Dow stocks were up today, and American Express (NYSE: AXP  ) led the way, up 2.46% to $58.66. Two weeks ago, AmEx was one of the companies that passed the Fed's annual stress test of banks. After the results were published, JPMorgan Chase, Wells Fargo, and US Bancorp all announced dividend raises and stock buybacks. Investors expected American Express to do the same, and today it came through. The credit card behemoth announced that it's raising its dividend by $0.02 per quarter to $0.20 for a yield of 1.36%. American Express also announced a new 150 million share-buyback authorization. The company said it plans up to $4 billion of share repurchases in 2012. At today's price that would be roughly 68 million shares or 5% of the company.

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Fool contributor Dan Dzombak holds no position in any company mentioned. The Motley Fool owns shares of Wells Fargo and JPMorgan Chase. Motley Fool newsletter services have recommended buying shares of Wells Fargo and creating a write covered strangle position in American Express. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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