A week after markets plunged on bullish predictions from Federal Reserve Chairman Ben Bernanke, stocks are cruising higher on positive economic news. The market's day-to-day movements can be a little head scratching at times. It has become abundantly clear that the market's sour reaction to potential reductions in Fed bond-buying was overdone last week, and economic data released this week has eased investors' fears.
Today's economic releases showed a 9,000-person drop in unemployment claims to 346,000 -- very close to the four-week moving average of 345,750 and another sign that the labor market is improving, albeit very slowly. Consumers are also spending enough to keep the economy running: The Department of Commerce revised its April consumer-spending figure from a 0.2% decline to a 0.3%.
The Fed has also been working to slow down the rise of long-term interest rates, which would have the most detrimental impact on the economy. The 10-year Treasury yield has fallen from 2.55% in early trading to 2.49% -- an indication that the Fed's efforts to pull back on taper talk are working.
Add all of this up, and investors are once again bullish on stocks and unconcerned about a rapid rise in interest rates, pushing the Dow Jones Industrial Average (DJINDICES: ^DJI ) 0.86% higher and the S&P 500 (SNPINDEX: ^GSPC ) 0.68% higher near the end of trading.
But not every sector is having a good day. Gold has dropped again, and SPDR Gold Shares (NYSEMKT: GLD ) has fallen 1.7%. The ETF is down 33% from its 52-week high, due in large part to the realization that inflation will not take hold in the U.S. and the Fed's money-printing days are nearly over.
Gold bugs have been bidding up the shiny metal on the thesis that the Fed's easy-money policies will both expand the money supply and lead to inflation, leaving gold as the only safe haven. It turns out that inflation hasn't been a problem, and as the Fed starts to stop the printing presses, there's less and less credence in that bullish argument. Thus the price of gold is rapidly declining -- and I don't see it stopping anytime soon.
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