The Real Reason Stocks Perked Up This Morning

Every eye on Wall Street this morning is focused on Federal Reserve Chairman Ben Bernanke, who began giving his twice-yearly congressional testimony before the House Financial Services Committee this morning. With pundits scrutinizing Bernanke's words in search of clarification on the timing of the eventual reduction in the Fed's long-standing quantitative-easing program, the market hasn't shown much reaction to the usual balancing act of trying to prepare investors for tapering while avoiding a panic like the one that hit the bond market last month. As of 11 a.m. EDT, the Dow Jones Industrials (DJINDICES: ^DJI  ) are up a modest 20 points, while broader market measures are moderately higher.

But irrespective of Bernanke's comments, the real reason the stock market is poised to advance is that U.S. economic conditions have improved and appear likely to continue improving. Even in light of rising interest rates that could have hurt parts of its business, Bank of America (NYSE: BAC  ) has climbed 1.5% on a 63% jump in its second-quarter profit. The cost-cutting measures B of A has made are just one example of the huge gains in efficiency that we've seen across corporate America, and it's paying off in higher profit margins and rising earnings. In addition, as the employment picture starts to get brighter, consumer-driven businesses have started to rebound more sharply, and that in turn should filter through to more industrially focused companies as well.

Admittedly, not every company in the Dow is responding favorably today. American Express (NYSE: AXP  ) has dropped 4% in advance of its earnings release after the close today, as one analyst downgraded the company's stock in light of high valuations. Analyst firm Buckingham also said the potential for a cap on transaction fees that the European Union is considering imposing could hurt the card company's profits.

McDonald's (NYSE: MCD  ) has fallen more than 1% on a downgrade from Janney Capital, which cut earnings expectations by half a percent and reduced same-store sales estimates for June and July. The fast-food giant has struggled to keep growth up despite headwinds in some international markets and increased competition within the U.S. market.

On the whole, though, investors appear to take the Fed at its word when it says it won't change its accommodative stance more quickly than the market can handle. For investors, that's good news for right now and for the long run as well.

Millions of Americans have waited on the sidelines since the market meltdown in 2008 and 2009, too scared to invest and put their money at further risk. Yet those who have stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2541716, ~/Articles/ArticleHandler.aspx, 10/25/2014 7:16:27 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement