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.
The Dow Jones Industrial Average (^DJI 0.69%) is relatively unchanged after two better-than-expected reports on U.S. manufacturing activity are tapering fears. Financials are pulling the Dow higher, with heavyweights Visa (V 0.65%) and Goldman Sachs (GS 1.59%) both up more than 1% on the prospect of higher long-term rates. As of 1:30 p.m. EST the Dow was unchanged at 16,084. The S&P 500 (^GSPC 1.20%) was up 3 points to 1,809.
There were two U.S. economic releases today.
|
Report |
Period |
Result |
Previous |
|---|---|---|---|
|
ISM manufacturing index |
November |
57.3% |
56.4% |
|
Markit U.S. PMI |
November |
54.7 |
51.8 |
Today, both the Institute for Supply Management's manufacturing index and Markit's Purchasing Managers' Index both came in well above analyst expectations. The ISM's index hit a two-year high of 57.3%. Readings above 50 indicate expansion with higher levels meaning a faster rate. The growth in the manufacturing index was led by jumps in new orders and employment.
Source: Institute for Supply Management
The better-than-expected data raises the chance that the Fed will taper its $85 billion worth of long-term-asset purchases. Treasury bonds and mortgages sold off on the news with the yield on the 10-year treasury rising to 2.8% and the yield on 30-year fixed-rate mortgages rising to 4.38%.
10 Year Treasury Rate data by YCharts
Rising rates are good for financials that make money on the spread between short-term rates and long-term rates. Members of the Federal Reserve Board have been out saying that while the Fed will taper asset purchases at some point, its zero-interest-rate policy will likely remain until sometime between 2015 and 2017. Financials will benefit by being able to borrow at 0.25% while lending out at the higher long-term treasury and mortgage rates.
As such, today's Dow leader is Visa, up 1.34% to $206.19, with Goldman Sachs up 0.91% to $170.48. As the Dow Jones Industrial Average is a price-weighted index -- the big reason I have called the Dow useless -- these two stocks are holding the Dow up almost on their own as they make up nearly 15% of it.
