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U.S. stock markets fell this week, as traders continue to be concerned about the Federal Reserve's plans to "taper" an $85 billion bond-buying program later this year. It didn't help that economic news was mixed with falling consumer confidence and climbing interest rates rising while consumer spending rose. By the end of the week, the Dow Jones Industrial Average (DJINDICES: ^DJI ) had fallen 2.23% and the S&P 500 (SNPINDEX: ^GSPC ) was down 2.10%.
The only Dow component that moved higher this week was Caterpillar (NYSE: CAT ) , which was up 0.8%. It continued positive momentum from last week, when China reported increased imports and industrial output. China's economic growth has been slowing, and there's fear that expanding credit in the region has created a bubble that could lead to a big drop in demand for Caterpillar's equipment. For now, the country is still growing, and that's good for Caterpillar's short-term prospects.
Bank of America (NYSE: BAC ) fell only 0.2% this week, holding up well in part because interest rates rose. As long-term Treasury rates climb, mortgage rates have gone up, which should increase the spread between what Bank of America can borrow for the short term and lend out for the long term. The Fed has said it will keep short-term interest rates low into 2015, so rising spreads should help the company's profits for the next two years.
American Express (NYSE: AXP ) was the third best performer on the Dow, falling 0.4% this week. The company reported a rise in average credit card balances to $54.6 billion in July from $54.4 billion a month earlier. It makes money on both transactions and from interest on balances, so this should indicate higher profits going forward.
Keep in mind that despite a bad week, the Dow has returned 17% this year and the S&P 500 is up 17.7%. It's as if the market was looking for an excuse to pull back this week, and it did so despite the lack of significant negative economic data.
Long-term, tapering is actually a good thing for investors because the Fed will only allow rates to rise if the economy can stand on its own. With that economic growth in mind the Motley Fool has created a brand-new special report, "The 3 Dow Stocks Dividend Investors Need" that highlights three companies standing to grow with the economy and pay you a fat dividend in the process. It's absolutely free, so simply click here now and get your copy today.