Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
As you've probably heard by now, the Dow Jones Industrial Average (^DJI -0.11%) hit a record high today as the Federal Reserve surprised everyone by maintaining its monthly bond-buying at $85 billion. As a result, the blue chips soared 147 points, or 1%, to 15,677. The market had expected the long-discussed taper to go into effect with today's meeting, with most betting on a cut to $75 billion. That assumption seemed a bit foolhardy, however, as Chairman Ben Bernanke has promised that the decision to taper will be data-driven, and jobs reports for the last two months have disappointed. In its statement, the Fed noted that "the unemployment rate remains elevated; mortgages have risen; and fiscal policy is restraining economic growth." The Fed had previously stated that its aim was to keep interest rates low until unemployment fell to 6.5% or inflation reached 2.5%, and said today it would continue its purchases until "the labor market has improved substantially." The Open Market Committee voted 9-1 in favor of the decision, with Esther George as the lone dissenter. The next Fed meeting will be held October 29-30.
Stocks weren't the only asset class that reacted to the announcement. Gold and oil both jumped, up 4.2% and 2.7%, respectively, as precious metals tend to appreciate with money printing, while oil rose in the general economic bullishness. Benchmark 10-year Treasury yields were down 5.1% to 2.71% as the Fed's purchases are designed to bring down interest rates.
Alcoa (AA) was the big winner on the Dow, gaining 3.6%, as the cyclical stock benefits more than most from an accommodative monetary policy. Also, as the only Dow company struggling to turn a profit these days, the aluminum maker could use all the help it can get. Alcoa shares were already up 1% before the Fed's announcement, as the manufacturer won a victory in court taking it one step closer toward recouping $100 million from Apache Energy in a dispute over a gas explosion.
Another big winner today was Home Depot (HD -1.77%), whose stock jumped 2.1%. The home-improvement retailer has been a major beneficiary of the low mortgage rates made possible by the Fed's asset purchases, and the drop in interest rates today should help sustain the housing recovery. Despite that good news, housing starts and building permits for August both came in lower than expected today, with building permits dropping 4% from July's total.
Finally, UnitedHealth (UNH 0.23%) was the only one of 30 Dow stocks to fall, down 1.7% as the health insurance provider is mostly unaffected by macroeconomics and cyclical trends. The insurer also learned today that Walgreen would move 120,000 of its employees, many of whom were on UnitedHealth plans, on to health-care exchanges, where they will receive a similar stipend from the drugstore chain to choose their own plan. The move raises the question of how many more companies will follow as businesses like IBM and Time Warner have made similar moves. Obamacare remains a huge question mark for insurers, but it hasn't held back UnitedHealth thus far as its stock is up 35% year to date.
