Dow Hangs On to Highs Despite Confusing Economic News

Has anyone else noticed that the Dow keeps climbing higher despite consistently underwhelming economic data?

Jun 2, 2014 at 4:33PM
Take The Long View

The Dow Jones Industrial Average (DJINDICES:^DJI) inched further into record territory today, breaching 16,740 points. Meanwhile, the S&P 500 (SNPINDEX:^GSPC) was flat after hitting a record close on Friday.

Confusing manufacturing data
The broad movements higher were dampened by the Institute for Supply Management's manufacturing report, released this morning.

The ISM index measures the expansion or contraction of productivity in the manufacturing sector. A reading above 50 indicates expansion, while anything below that point indicates contraction. This morning's first reading came in at 53.2%, the lowest level since February and down from April's 54.9%. 

Later in the morning, though, the ISM revised the number higher to 56%, citing a software mistake that applied April's seasonal adjustments onto the May numbers. Economists were expecting 55.5%, so this revision was much more in line with forecasts.

Then, in early afternoon trading, the ISM again revised the numbers. This latest revision put the index at 55.4%. 

Confused yet? 

To sum things up, the ISM Manufacturing numbers today indicate that manufacturing in the U.S. is growing. That much is clear. Whether that growth is at, above, or below expectations remains debatable. It depends on which version of the numbers you happen to believe, assuming any of them are accurate at all.

Don't forget, its jobs week
This Friday, investors and economists will see the monthly employment numbers for May. The unemployment rate, perhaps the most simplistic of labor market measures, has clearly been improving for over five years now. It's a hugely significant data point, because more Americans with jobs correlates to more Americans spending money and driving the overall economy.

US Unemployment Rate Chart

US Unemployment Rate data by YCharts.

The long-term trend in economic improvement notwithstanding, recent economic releases have tended to be reasonable numbers that disappoint economist expectations.

First there was the underwhelming first-quarter GDP figure, which showed negative growth for the first time in years. Then there was the continued weakness in the housing market. And of course there was today's twice-revised manufacturing data.

Each disappointment has failed to concern the markets, as both the Dow and S&P have moved from record high to record high. Each report is an anomaly; there's always an excuse. 

In the world of economic data, arguably no area matters as much as the labor market.

What if the general weakness reported across the economy catches up to the labor market this month? What if the unemployment rate reverses its improving trend, even if temporarily? What if all the excuses turned out to be wrong? What if something really is amiss in the economy?

Contemplating the worst
Fellow Fools Morgan Housel and Dan Caplinger have written time and again that investors should not focus on economic reports when making investments. Pay a little attention to the multiyear trends, but generally ignore anything more short-term than that.

I tend to think they are right. Buying a rock-solid stock when the economy is in a down cycle is probably a great idea; it's still a rock solid company, and it's probably cheap.

So what would a really ugly jobs report mean to you as an investor this month? Generally speaking, it shouldn't mean anything at all. Nothing. Nada.

That said, it could mean that a buying opportunity is just around the corner. When group psychology trumps reason and the broad markets move lower based on macroeconomic conditions or fear, this presents a fantastic opportunity to buy the best companies for cheap. 

The Dow and S&P today are once again flirting with record highs. Don't panic if this bull run takes a breather or even retreats for a time. Today we are investing in an unprecedented environment. We are just a few short years past a generational economic crisis. The Federal Reserve is deploying brand-new and untested monetary policies.

But don't sell your stocks in a panic just because some economic data disappoints or confuses. Play it cool, buy strong companies for cheap, and be greedy when everyone else is fearful.

Will this stock be your next multibagger?
Give us five minutes and we'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks one stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Jay Jenkins has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

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.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

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. It's also featured on several dozen 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 ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers