Dow Up as China and U.S. Economies Improve

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 (DJINDICES: ^DJI  ) is up slightly after last Friday's big gains. As of 1:30 p.m. EST, the index had risen 30 points to 16,050. The S&P 500 (SNPINDEX: ^GSPC  ) was up five points to 1,810.

On Friday, the Labor Department reported 203,000 jobs were added in November and that the unemployment rate fell to 7%. The report had the markets up 1%, pushing the Dow above 16,000 again and sending the S&P back above 1,800. The Federal Reserve said in June that 7% was the level when it would begin tapering quantitative easing, but Fed officials have since said that figure is not a hard line but rather a general level for pulling back stimulus.

With the Federal Reserve being the largest buyer of bonds in both the Treasury and mortgage-backed securities markets, bonds sold off on Friday as investors continued to worry about tapering. They regained some ground today, though, with the yield on the 10-year Treasury falling to 2.84% and the yield on 30-year fixed mortgages falling to 4.48%.

10 Year Treasury Rate Chart

10-Year Treasury rate data by YCharts.

Now we are waiting to see if Congress can come together on a budget plan by Friday. Congressional leaders hope that a bipartisan plan can be reached and another government shutdown avoided. Neither side is happy with the status quo in federal spending, with the sequester taking large chunks of funding out of both sides' favored programs. In one hopeful sign, the plan in the works would set spending levels for two years, allowing agencies to take a longer view than in recent years in which a new budget was never approved and the old one kept in place through continuing resolutions.

With uncertainty over government spending poised to drop in the U.S., large conglomerates got a second spoonful of good news when China reported that exports were up 12.7% year over year in November. Analysts had expected exports growth of 7%. If the numbers are to be believed, China's economic growth is picking up. The Chinese economy has been a major engine of the world economy; when it grows faster the benefits spread around the world, especially in the commodity markets.

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