The Dow Jones Industrial Average (DJINDICES:^DJI) is up as investors ignore the events in Cyprus and wait for the Federal Open Market Committee's statement at 2 p.m. EDT. As of 1:15 p.m. EDT the Dow is up 52 points, or 0.36%, to 14,508. The S&P 500 (SNPINDEX:^GSPC) was up 0.57% to 1,557.
Last night, Cyprus' parliament voted against the controversial plan to tax the country's bank accounts. While the EU has offered 10 billion euros in bailout funds, Cyprus needs another 6 billion euros to 7 billion euros to shore up its financial system. Cyprus is considering numerous options to close the gap, including reaching out to Russia for support. If Cyprus is unable to raise the necessary funds, banks will go bankrupt and the country's economy will be crushed, possibly necessitating an exit from the euro.
While it's unclear what will happen in Cyprus, the markets are primarily focused on the Federal Open Market Committee's impending statement. As part of QE3, the Fed is currently buying $85 billion worth of long-term assets each month and has continued to keep the target for the federal-funds rate between 0% and 0.25%. The committee said in December that its plan to keep rates low "will be appropriate at least as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2% longer-run goal, and longer-term inflation expectations continue to be well anchored."
With the unemployment rate at 7.7% and the most recent consumer price index showing 0.7% inflation, I expect the Fed to stick with its stated policy.
Today's Dow leaders
Today’s Dow leader is Merck (NYSE:MRK), up 1.1%. Merck and the pharmaceutical sector as a whole are up today. Pharmaceuticals are affected by government policy, but their results are largely independent from the health of the economy and the Federal Reserve's policies. Merck faces some difficult challenges with upcoming patent expirations, which likely will not allow the company to raise its dividend. That said, Merck shares currently yield a substantial 3.9%, and the company is a member of the 2013 Dogs of the Dow.
Third for the day is American Express (NYSE:AXP), up 0.9%. Last week American Express passed the Fed's stress test with flying colors. In its plan, American Express requested a 15% increase in its quarterly dividend from $0.20 per quarter to $0.23 per quarter, as well as a $4.2 billion share buyback through 2014. The new dividend gives American Express a forward yield of 1.4% at current prices. American Express' results are highly dependent on how well consumers are doing. With unemployment at its lowest level in years, American Express is doing well. If the economy continues to improve, expect to see American Express' fortunes rise.