DJIA Higher as Fall in Inflation Lowers Fed Taper Chances

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 three straight days down for a 1.5% drop for the week. As of 1:30 p.m. EST the Dow had risen  35 points to 15,774. The S&P 500 (SNPINDEX: ^GSPC  ) was up two points to 1,777.

There was one U.S. economic release today.

Report

Period

Result

Previous

Producer Price Index

November

-0.1%

-0.2%

Core PPI

November

0.1%

0.2%

The Producer Price Index dropped 0.1% in November, month over month, for a 12-month gain of 0.7%. This is the lowest year-over-year increase in the PPI in five years. Leading the index down was a 0.4% drop in energy prices. Core PPI, that is PPI excluding food and energy prices, was actually up 0.1% for a 12-month rise of 1.3%.

The decrease in the already low PPI, coupled with other low measures of inflation, is giving some investors hope that the Federal Reserve will not taper its asset purchases when it meets next week. The Federal Reserve traditionally has a dual mandate of full employment and stable prices (though a third mandate of "a safe and sound financial system" could be in the making under incoming Chairwoman Janet Yellen). In an effort to get back to full employment, the Federal Reserve has been purchasing $85 billion of long-term assets each month as an economic stimulus tool. The Fed has said it will continue to do so until the economy reaches 6.5%-7% unemployment, inflation increases above the target of 2%-2.5%, or inflation expectations rise above 2%-2.5%.

With interest rates at 0.25%, $85 billion of monthly asset purchases to hold down long-term rates, and unemployment now at 7%, you would expect inflation to rise -- but that has not been the case. The Federal Reserve is unsure why inflation is falling and may use that as an excuse to keep its asset purchase policy in place longer than the market expects.

Dow leaders
Today's Dow leader is Home Depot (NYSE: HD  ) up 1.17% to $79.45. Home Depot is rising after an analyst from Raymond James upgraded the stock from market perform to outperform following the company's investor day. Raymond James expects Home Depot's operating margin and cash flow to improve. Despite being the top gaining Dow stock today, because the Dow is structured as a price-weighted index Home Depot is not having the largest effect of the 30 index stocks.

The biggest mover for the Dow today is Visa (NYSE: V  ) up 1.64% to $206.78. Visa is up 2% this week in line with MasterCard, after that credit card company raised its dividend 83% and announced a $3.5 billion share buyback, signaling management expects the company to do well going forward.

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