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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.
Despite the hundreds of billions of dollars pumped into the economy since the beginning of the financial crisis, the U.S. economy is stubbornly showing few signs of inflation. In fact, inflation was almost nonexistent in August: The consumer price index advanced just 0.1% last month, a reading that may encourage the Federal Reserve to cut back its stimulus program only conservatively as it convenes tomorrow to debate policy.
The central bank wants to avoid deflation, which encourages consumers to save rather than spend their money as prices fall. Hopeful that the Fed will enact modest stimulus cutbacks tomorrow, the Dow Jones Industrial Average's (DJINDICES: ^DJI ) tacked on 34 points, or 0.2%, to end at 15,529.
Alcoa's (NYSE: AA ) impending exit from the Dow didn't stop the stock from jumping 2% on Tuesday. With just three more days of trading left in the blue-chip index after a 54-year ride comes to a close, shares in the aluminum giant are as volatile as ever. Today's move, for instance, came despite the absence of a clear catalyst. Going forward, it will be interesting to see how Alcoa contains its costs: The company has increasingly been moving facilities abroad in recent years to cut its power expenses.
American Express (NYSE: AXP ) added 1.8% today, keeping alive the stock's five-day winning streak. If deflation ever rears its ugly head, it could severely affect companies like AmEx, which rely heavily on increasing consumer spending for more business. Since the depths of the recession in 2009, that hasn't been a problem for AmEx, which has seen three straight years of revenue growth and earnings per share numbers more than double.
International Business Machines (NYSE: IBM ) , the Dow's heaviest-weighted component, lost 0.5% after it announced a $1 billion investment in Linux-based Power Systems servers. While this could very well be an astute investment by IBM, it may take a few years to play out, and oftentimes Wall Street can be myopic, focused on immediate gratification rather than long-term potential.
Lastly, UnitedHealth Group (NYSE: UNH ) stock shed 1.1%, as the health-care sector approaches the day that will change its dynamics forever. That day is October 1, the date when Obamacare state exchanges open their doors for the first time. Like an options contract approaching its expiration date, watch for increasing volatility in health-care stocks as we inch toward October. No one really knows what to expect from the new system.
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