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2 Key Things Investors Missed in the Stock Market Rally This Week

By Dan Caplinger – Oct 9, 2020 at 4:45PM

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Looking beyond stocks is essential to understanding Wall Street's ways.

Friday closed the week on a positive note for the stock market, with market participants seeing no reason to curb their enthusiasm about the future. With Washington politicians once more getting close to making a deal for more economic support, and with most investors perfectly willing to shrug off what's been a significant uptick in COVID-19 cases in many states across the nation, stocks added nice gains to their advance from Monday to Thursday. With today's gains, the Dow Jones Industrial Average (^DJI -1.45%) and S&P 500 (^GSPC -1.54%) were up between 3% and 4% for the week, while the Nasdaq Composite fared best of all, rising more than 4.5% since Oct. 2.

Today's stock market

Index

Percentage Change

Point Change

Dow

+0.57%

+161

S&P 500

+0.88%

+30

Nasdaq Composite

+1.39%

+159

Data source: Yahoo! Finance.

Looking at stocks, everything appears to be going perfectly for investors. But to understand everything that's going on with the investment world, you sometimes have to go beyond the stock market. This week, there were a couple of noteworthy events in other financial markets that were worth the notice of those who concentrate on equities.

A big rate rise

Even as stock markets moved higher, it was a different story for the bond market. Monday's stock market gains sent bond prices plunging, with the 30-year Treasury falling by about 2%. By the end of the week, rates had risen from 1.49% the week before to 1.57% on Friday.

That might not seem like much, but it was enough to send some big bond ETFs down. iShares 20+ Year Treasury (TLT 0.28%) ended the week with a nearly 2% drop, while some shorter-term Treasury funds saw slightly smaller declines.

Perhaps more importantly, it was one of the first times in a long while that the stock market and bond market went their separate ways during a rally. Throughout much of the past several years, interest rates have been moving downward, and that's helped support the stock market rally. Yet this week's gains for the stock market came more on prospects for rising government spending -- a factor that typically puts pressure on Treasury bond prices.

With long-term rates below 1.6%, this week's bond market drop isn't significant by itself. However, investors need to keep their eyes on bonds to make sure the prevailing trend for years doesn't reverse itself.

Raised mosaic forming symbol for bitcoin against a background of gray mosaic tiles.

Image source: Getty Images.

Bitcoin bulls emerge

Another interesting move came from the cryptocurrency markets. Bitcoin prices fell below the $10,500 mark on Oct. 2, but by the end of the week, they had moved above $11,000.

The big news for Bitcoin came from Square (SQ -3.17%). The mobile payments specialist said that it had invested $50 million in bitcoin, purchasing 4,709 tokens at an average price of just over $10,600.

There's nothing new about Square's interest in bitcoin. CEO Jack Dorsey has been a proponent of the cryptocurrency, arguing that it could become the dominant currency of the future. Square has accepted bitcoin for years, and it recently started an organization aimed at keeping cryptocurrency-related intellectual property open-source in order to avoid disruptive patent litigation from destroying the industry.

As for bitcoin itself, the token's price is still far below its $20,000 high from a couple years ago. But many are bullish on bitcoin's long-term prospects, and this week's move higher could be the beginning of a longer uptrend for cryptocurrency in general.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Square. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Block, Inc. Stock Quote
Block, Inc.
SQ
$61.37 (-3.17%) $-2.01
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$33,849.46 (-1.45%) $-497.57
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$3,963.94 (-1.54%) $-62.18
iShares Barclays 20+ Year Treasury Bond Fund Stock Quote
iShares Barclays 20+ Year Treasury Bond Fund
TLT
$103.19 (0.28%) $0.29

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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