This morning the Department of Labor released June's jobs report, which indicated that 195,000 new jobs had been created in the month. Further, the readings for April and May were revised higher by a total of 70,000 jobs. Analysts had been forecasting 155,000 new jobs for June, so this was a big surprise. The news has helped the markets rally today, and as of 12:55 p.m. EDT the Dow Jones Industrial Average (^DJI 0.69%) is higher by 89 points, or 0.59%, while the S&P 500 is up 0.61% and the Nasdaq has risen 0.62%. But while the 89-point increase in the Dow seems like a big win, this morning the blue-chip index made even bigger gains that were eaten away before it could recover to its current level.
Due to the jobs report and the fear that the Federal Reserve will soon allow interest rates to begin to rise, Treasury bonds have been off to the races today. The five-year T-Bond began the day at a 1.41% yield and is now at 1.58%. The 10-year has risen from 2.5% to 2.7%, and 30-year has climbed from 3.5% to 3.66%. The rising Treasury yields will make it more expensive for home buyers and businesses to borrow money -- which could slow the current pace of economic growth we have been experiencing.
The other problem with high Treasury yields is that the safe return on investment of Treasury bonds lures investors away from quality dividend-paying stocks like McDonald's (MCD 0.47%) and Procter & Gamble (PG 0.60%). Both companies currently have a dividend yield of 3.1% and are members of the elite dividend aristocrats -- companies that have increased their dividend payments for each of the past 25 years. When bond yields fall, investor move into these safe stocks, but as bond yields increase and investors can receive similar rates of return in a safer form, they turn back to bonds, which is what's happening today. McDonald's has lost 0.5%, while Procter & Gamble is down 0.3%.
Shares of Alcoa (AA) are also missing out on the Dow party, sitting near breakeven so far today. The aluminum giant is set to announce second-quarter earnings on July 8, officially kicking off earnings season. Alcoa has had a rough time in 2013: The stock has lost 11.18% year to date, making it the worst-performing Dow component. The metals markets are covered in red today, which could be contributing to Alcoa's lackluster performance this afternoon. An oversupply of aluminum has plagued the company for the past few years, causing the price of aluminum to continuously decline, resulting in lower revenue and slim profit margins for Alcoa.
