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Why the Dow Is Higher Today

John Maxfield
July 8, 2013

Blue-chip stocks are headed higher this afternoon on the heels of Friday's better-than-expected jobs report and in anticipation of second-quarter earnings season. As of 2:35 p.m. EDT, the Dow Jones Industrial Average (INDEX: ^DJI) is up by 89 points, or 0.59%.

It's safe to say that last week ended on a high note. The Department of Labor released data showing that a total of 195,000 jobs were created in June. This soundly beat the consensus forecast, which called for a gain of 155,000 jobs, and it was the third-best June jobs report in the last 15 years.

As my colleague Morgan Housel noted at the time, "Bad news for the end-of-the-world crowd: June's jobs report was released Friday, and it was pretty good."

But while this was unquestionably good news for the economy, it wreaked havoc in the bond market. Yields on the benchmark 10-year Treasury bond shot above 2.7% -- the highest rate in nearly two years. And there was a veritable slaughter in the mortgage market, with the interest rate on a conventional 30-year fixed-rate mortgage beginning to approach the 5% level.

In terms of stocks, we've seen the brunt of this "re-pricing" hit mortgage REITs, which hold portfolios of mortgage-backed securities, the values of which move inversely to long-term interest rates. Since May 22 -- that is, the day the Federal Reserve triggered the flight from bonds by intimating that it'll begin to reduce its support for the economy -- shares of Annaly Capital Management (NYSE: NLY) and American Capital Agency (NASDAQ: AGNC), the two largest players in this space, have plummeted by 20.7% and 40.2%, respectively.

That being said, for at least the next few weeks, analysts' focus will be