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.
The market is rising after multiple positive reports on the economy and a general consensus that the Federal Reserve will not taper in December. As of 1:30 p.m. EST the Dow Jones Industrial Average (INDEX: ^DJI) was up 127 points to 15,881. The S&P 500 (^GSPC +1.20%) was up 11 points to 1,786.
There were three U.S. economic releases today.
|
Report |
Period |
Result |
Previous |
|---|---|---|---|
|
Productivity (revision) |
Q3 |
3% |
1.9% |
|
Industrial production |
Nov. |
1.1% |
0.1% |
|
Capacity utilization |
Nov. |
79% |
78.2% |
Third-quarter productivity was revised upward to 3%, in line with analyst expectations. The one to pay attention to is industrial production, which rose 1.1% in November, the largest month-over-month jump since November 2012. Analysts had expected a 0.6% increase based on earlier indicators, particularly the inventory report and purchasing managers indexes, that pointed to increased manufacturing. However, the significantly higher-than-expected gain led to a year-over-year increase of 3.2% for industrial production and nearly the highest level of capacity utilization in five years; that measure rose to 79% in November from 78.2% in October.
U.S. Industrial Production Index data by YCharts.
The big news this week is the Federal Open Market Committee meeting that begins tomorrow and ends Wednesday afternoon. The question is whether the Fed will end its $85 billion monthly long-term asset purchases. The Fed had said it will begin tapering purchases when unemployment hit 7%, if inflation rose, or inflation expectations rose. With unemployment now at 7%, inflation near 1% and decreasing, and inflation expectations near 2% for the next five years, the conditions are right for the Fed to taper. However many investors believe the Fed will wait until after the holidays to make its move.
Tapering can be seen as a good or a bad thing. Good in that it means the Fed believes the economy is strong enough to improve with just the central bank's zero interest rate policy. Bad in that the market loses the daily steroids that have been pushing it to new highs. I have written multiple times about why I think the stock market is overvalued, and I'd hesitate to put money to work in the broad market at these levels.
The chance that the Fed will taper is not holding back the market today, with 26 of 30 Dow stocks up. Today's Dow leader is IBM (NYSE: IBM), up 3% to $178.01 after hitting a 52-week low of $172.57 on Friday. IBM was in the news this weekend after an IBM shareholder sued the company for lobbying for a bill to allow companies to share information with the NSA, which has since led to the loss of sales to the Chinese government. Fool analyst Anders Bylund recently included IBM as one of his three best buys in tech for 2014; you can read more here.
