Why Economic Doubt Isn't Holding Back the Dow

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Throughout much of 2013, the stock market has responded to economic data in unpredictable ways. Sometimes investors have applauded strength in the U.S. economy by pushing stocks higher, while at other times strong readings have inspired fear about the future course of the Federal Reserve's monetary policy. This morning, the "bad news is good news" camp seems to be winning out, as a more than 7% drop in durable-goods orders didn't stop stocks from positing a modest gain, with the Dow Jones Industrials (DJINDICES: ^DJI  ) up 28 points as of 10:55 a.m. EDT. Bond prices recovered somewhat, with the yield on the 10-year Treasury falling back to about 2.8% after having climbed above 2.9% late last week.

Looking at individual Dow components, today's market moves largely seem to be temporary reversals of stronger recent trends. For instance, Home Depot (NYSE: HD  ) is up 2.8% this morning, regaining some of the roughly 8% it lost during the previous couple of weeks as rising interest rates have raised questions about the durability of the housing market's sharp recovery over the past year. Last week's figures on new-home sales helped drag the home improvement retailer down for the week, but bargain-hunting investors appear to be stepping in today.

By contrast, Microsoft (NASDAQ: MSFT  ) has given up some of last week's big gains, falling by 1.8%. With the news that longtime CEO Steve Ballmer plans to retire within the next year, many investors finally got what they had been wishing for. Yet now the company has to answer the difficult question of who can effectively fill Ballmer's shoes and come up with a working strategy for maximizing the tech giant's value going forward.

Finally, consumer products giant Procter & Gamble (NYSE: PG  ) has fallen about 0.7%. As The Wall Street Journal noted on Friday, the company revealed in its proxy filing that it is paying $200,000 to provide a temporary residence for CEO A. G. Lafley. Lafley's apparent decision not to establish a more permanent residence in the Cincinnati area, where P&G is based, only reinforces the fact that the decision to bring back the former CEO is a temporary move, rather than a permanent solution to the company's struggles in recent years.

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  • Report this Comment On August 26, 2013, at 11:16 AM, Youvegot2bekidin wrote:

    Holding back the DOW? Economic doubt is fueling the DOW because of QE.

    Don't believe me? Then why did the DOW fall nearly 800 points in 2 weeks on fear of stimulus tapper, but then rose on Thursday's weak unemployment numbers and again on Friday's report of the worse house sales numbers since Oct of last year?

    The DOW and S&P are on the rise because bad news to investors is great news for the DOW because it lessens the likelihood of the Stimulus being tapered!

  • Report this Comment On August 26, 2013, at 4:52 PM, ryanchandler25 wrote:

    Your CEO sold all of his stock 18 months ago? Man, he has to be kicking himself.

  • Report this Comment On August 26, 2013, at 10:16 PM, PEStudent wrote:

    There's nowhere else to put money and America's corporations have been repurchasing shares and sitting on an all-time cash record of $2 Trillion - some of which is certainly being invested.

    Market fools have been comparing 2013 to 1987 but in 1987 10-year Treasuries were paying 8% interest while inflation had been tames to 3.6%. You had to be an idiot not to want to move money into bonds at 4.4% above inflation guaranteed returns.

    Now 10-years are up to 2.9%, 0.8 above inflation. Meanwhile the market's stock prices are growing at double-digit annual rates and sector gorillas are typically pay 2.5% to 5.2% dividends. It's going to take a lot to make the market crash!

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