Interest Rates and Stocks Rise Ahead of Jobs Report

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

A day ahead of the all-important monthly jobs report, stocks and Treasuries are both rising as economic data continues to slowly improve. Today, ADP said 176,000 private-sector jobs were added in August, down from July's 198,000 job gain. New unemployment claims also fell to 323,000 -- the lowest reading since October 2007. We may not be gaining a lot of jobs, but people also aren't losing the jobs they have. 

Positive jobs data means that unless there's terrible news about the labor market tomorrow, it's likely that the Federal Reserve will begin slowing its asset purchase program later this month. That speculation has helped push the 10-year Treasury yield up to 2.98% today, which would be the highest close since July 2011. Tapering concerns would have sent the market into a frenzy a month ago, but the Dow Jones Industrial Average (INDEX: ^DJI) has actually risen marginally late in today's trading session, and the S&P 500 (INDEX: ^GSPC) is up a modest 0.12%. The end of tapering is driven by improving economic data, so stock investors in for the long haul should be happy about tapering at the end of the day. 

The rise in interest rates and a report from Freddie Mac saying that 30-year mortgage rates rose to 4.57% last week are helping push down shares of Home Depot (HD +0.00%) by 1.4% today. Rising mortgage rates will likely put a big damper on existing-home sales over the next six months, and that's where Home Depot can take advantage of sellers fixing up homes and buyers modifying homes to their liking. The good news is that rising rates won't entirely kill the market, so Home Depot is still a decent value at 14 times forward earnings and a 1.3% dividend yield.

On the flip side, big banks JPMorgan Chase and Bank of America are both up 0.7% because they will benefit from higher spreads on new loans. When long-term rates rise and short-term rates stay the same, banks can make more money on the spreads between those rates. The Federal Reserve has given no indication it will raise short-term rates and that should mean higher profits for megabanks' mortgage units, provided volume doesn't evaporate.