After a break for the Fourth of July, the Dow Jones Industrial Average (DJINDICES: ^DJI ) got back to its winning ways, gaining 147 points, or 1% today. In a refreshing turn of events, stocks actually jumped on good news, gaining on a strong jobs report, after the market seemed hesitant in midday trading. In recent weeks, we've seen a pattern of equities moving higher on bad economic data, which Wall Street has interpreted as a sign that the promised end to the Fed's bond-buying program will be delayed. It's good to see investors back to cheering the recovery, as increased employment is the best long-term medicine for investors, not the Fed's stimulus program.
This morning, the Labor Department reported that nonfarm payrolls added 195,000 jobs in June, better than expectations off 166,000, and it also revised May's and April's total up by a combined 70,000. Meanwhile, the unemployment rate held steady at 7.6%; many of the new jobs came in the restaurant and retail segments. Interest rates jumped along with stock prices as the 10-year treasury yield increased 8.6%, to close out at 2.7%, as the likelihood of the Fed easing its treasury purchases pushes down their value, and, consequently, their rates up. Oil prices also climbed 2.4%, to $103, on continuing concerns in Egypt and the strong U.S. jobs report. Investors may want to keep an eye on both oil and treasuries, as either could cool off the recovery -- treasuries by pushing up mortgage rates, and oil prices by raising consumer and business costs.
Financial companies led the Dow's gain today as both American Express (NYSE: AXP ) and JPMorgan Chase (NYSE: JPM ) moved up 2.3%, and Bank of America gained 1.8%. The sector is one of the more macro-economically sensitive on the market, and American Express, in particular, stands to benefit from the improved job situation, which should lead to more consumer spending and borrowing on credit. However, rising interest rates could present a problem for mortgage lenders such as JPMorgan and B of A, as increased home-loan rates could cool off the housing recovery. Outside mortgages, higher interest rates will potentially help banks to increase their net interest margin and add profits in other lending areas.
Elsewhere, the consumer goods sector underperformed, with both McDonald's and Procter & Gamble (NYSE: PG ) among the few blue chips to finish down, and Coca-Cola barely eking out a gain. There was no company-specific news driving these movements, but just as financials and cyclicals become more attractive in an improving economy, defensive stocks like these lose their appeal, as the opportunity for new sales is limited. Also, increasing treasury yields make these dividend payers less appealing, as investors can now find nearly equal yields in the safety of bonds.
The market focus will shift to earnings season next week, as Alcoa will kick off the quarterly announcements on Monday after closing. Analysts are expecting earnings of $0.06 from the aluminum maker on sales of $5.83 billion.
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