Dow Jumps as Inflation Stays Low

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The Dow Jones Industrial Average (DJINDICES: ^DJI  )  was up 77 points to 16,299 at 1:30 p.m. EST, with 23 of 30 stocks in the green, after multiple positive reports on the economy. The S&P 500 (SNPINDEX: ^GSPC  )  was up 10 points to 1,828.

There were two U.S. economic releases today.

Report

Period

Result

Previous

Personal Income

November

0.2%

-0.1%

Consumer Spending

November

0.5%

0.4%

Personal Consumption Expenditures Price Index

November

0%

0%

Core PCE Price Index

November

0.1%

0.1%

Consumer spending rose 0.5% in November, above the 0.4% growth seen in October. Consumers' incomes have not been keeping up with spending, rising just 0.2% in November. As such the savings rate fell from 4.5% to 4.2%. Consumers have been struggling during this recovery as companies keep compensation exceptionally low. We will likely see this correct in the next few years as lower unemployment causes companies to compete for workers and the minimum wage is likely raised.

The one to pay attention is the PCE price index, which is the Federal Reserve's favored measure of inflation as the goods it tracks are updated more often than the Consumer Price Index and its measures more closely follow average consumer spending. Year-over-year PCE inflation was 0.9%, held down by a 2.7% drop in energy prices. Core PCE inflation, PCE excluding energy and food prices, was up 0.1% in November and 1.1% year over year. Inflation continues to be well below the Fed's target of 2%-2.5% and could be a challenge for the economy if it falls further.

Today's Dow leaders
Today's Dow leader is Cisco (NASDAQ: CSCO  ) up 1.75% to $21.50. Cisco had a bad start to the month as CEO John Chambers lowered revenue guidance to 3%-6% growth from 5%-7% growth. The stock has been fighting its way back up as investors take solace in Cisco's $48 billion cash hoard. Cisco and other technology companies have been hoarding cash abroad to take advantage of a possible repatriation tax holiday. In the meantime, that cash is sitting in foreign banks and earning investors nothing. If the company ever does decide to return that cash to its investors, that would mean a massive windfall for shareholders and the economy in general.

The Dow's biggest mover is its No. 3 riser today. IBM (NYSE: IBM  ) is up 1.5% to $182.81. With its stock price nearly nine times larger than Cisco, IBM has nine times the effect on the Dow, despite the company carrying just twice Cisco's value. It is for this reason and others I have called the Dow worthless

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