Why the Dow Jones Jumped Despite Weak Economic Data

China's economy slowed but not as badly as many expected. Janet Yellen's speech in New York pushed the DJIA up on the day.

Apr 16, 2014 at 1:33PM
Longview

The Dow Jones Industrial Average (DJINDICES:^DJI) is up today despite weak economic data in the U.S. and China. The stock market jumped around noon as Federal Reserve Chair Janet Yellen gave a speech at the Economics Club of New York. As of 1:15 p.m. EDT the Dow was up 117 points, or 0.72%, to 16,380. The S&P 500 (SNPINDEX:^GSPC) was up 0.66% to 1,855.

There were two U.S. economic releases today and three releases in China last night:

Report

Period

Result

Previous

Housing starts

March

946,000

920,000

Building permits

March

990,000

1,014,000

Industrial production

March

0.7%

1.2%

Capacity utilization

March

79.2%

78.8%

Chinese GDP growth

Q1 2014

7.4%

7.7%

Chinese retail sales YoY growth

March

12.2%

11.8%

Chinese industrial production YoY growth

March

8.8%

8.6%

YoY = year-over-year.

None of the U.S. reports were encouraging, but the Chinese reports showed the economy did not slow as much as many had feared. The two key reports here are U.S. housing starts and Chinese GDP growth. Housing starts rose to a seasonally adjusted annualized 946,000, up from a revised 920,000 in February but well below analyst expectations of 990,000. Building permits, a leading indicator of housing starts, fell by 2.4% to 990,000, missing expectations of 1.02 million. Housing-market activity has slowly been getting stronger since the depths of 2009 but is still well below the levels seen a decade ago. Today's data just shows that the U.S. housing market continues to slowly strengthen.

US New Housing Permits Chart

US New Housing Permits data by YCharts.

Meanwhile, China's economy has been propped up in recent years by politically directed government lending and infrastructure spending, which has led to large imbalances in the economy. These, coupled with restrictions on investment, have led to a housing bubble, as well as a credit bubble. The Chinese government has begun taking steps to mitigate these through actions to raise interbank lending rates and restrict unconventional lending. The effects were seen this past quarter in China's first-ever default of publicly sold bonds. Previously, government organizations would take all possible measures to prevent any default.

The restrictions on credit were expected to slow the economy's growth, but the Communist party is still targeting 7.5% GDP growth this year. However, recent import and export data has been far worse than expectations, causing analysts to lower forecasts for this quarter's annualized growth to 7.3%. Chinese GDP came in slightly above that at 7.4%, while retail sales and industrial production also beat expectations. Given that China is the world's second-largest economy, its economic data has a direct effect on many Dow stocks that have significant operations around the world.

The Dow Jones spiked upward at noon following Federal Reserve Chair Janet Yellen's speech at the Economic Club of New York. Yellen said the members of the Federal Open Market Committee believed the recent U.S. economic slowdown was the result of the harsh winter and did not represent a general slowing of economic activity. Yellen said it was "quite plausible" that the U.S. economy could return to full employment and stable prices within the next three years. The FOMC views "full employment" as an unemployment rate near 5.5% -- though that's not entirely accurate, given that many people are simply not looking for jobs or have part-time jobs, which is not reflected in the headline number. Yellen went on to talk about the challenges the Fed and the economy face and explained how the Fed would continue to communicate through its forward guidance; the Fed believes monetary policy is more effective when people understand what the Fed plans to do. Yellen's expectations that the economy will continue grow stronger pushed the Dow up at noon.

Boost your 2014 returns with The Motley Fool's top stock
There’s a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it’s one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Dan Dzombak can be found on Twitter @DanDzombak or on his Facebook page, DanDzombak. He has no position in any stocks mentioned. The Motley Fool recommends Visa. The Motley Fool owns shares of Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers