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Telecom Stocks are Rising

By Sam Mattera – Feb 27, 2014 at 11:20AM

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Shares of Verizon Communications, Sprint, and T-Mobile are all rallying as the Dow Jones is largely flat.

The Dow Jones Industrial Average (^DJI 0.10%) was up 44 points at 11:30 a.m. after starting the day's trading session flat  Dow Jones component Verizon Communications (VZ -0.39%) was up nearly 2% early in the session, while rivals T-Mobile (TMUS 0.40%) and Sprint (S) were also rising more than 2% early in the trading session.

Fed says taper will continue
Federal Reserve head Janet Yellen's morning testimony on Capitol Hill may have helped to keep the markets muted. Yellen told the Senate banking panel that the Fed would likely continue to curtail its asset purchases in future months, gradually winding down its expansionary monetary policy.

While the central bank's willingness to curtail asset purchases suggests that the U.S. economy is strengthening, it's not necessarily great for the stock market. The market's rally in recent years has coincided with the Fed's aggressive monetary stimulus, and cutting back on that program (bond buying is already down from $85 billion monthly to $65 billion) could lead to a drop in stock prices.

Verizon outperforming the Dow
Verizon was one of the Dow Jones' best-performing components early on Thursday, with a modest rally that was still quite significant for the $134 billion company. There wasn't much news to explain the move higher, but a few reports could be in the mind of Verizon investors.

Yesterday, The Wall Street Journal reported that Verizon is helping to investigate two possible security breaches at unidentified retailers. Verizon itself was not hacked, but is helping to ascertain the situation. Also, earlier in the week, Verizon's CEO made some comments regarding Internet usage, arguing that Netflix would have to strike a deal with Verizon to deliver its video content, and that heavy Internet users could have to pay Verizon more for their FiOS Internet service.

A Sprint/T-Mobile merger might be back on the table
Earlier in the week, T-Mobile shares tumbled after the company posted earnings that fell short of analyst expectations. The wireless carrier's move higher on Thursday may simply be a bounce back from the week's low.

Or it could be something more substantial -- perhaps speculation that the company's long-rumored merger with Sprint could happen. CNBC's Jim Cramer said early on Thursday that a Sprint/T-Mobile tie-up remained possible, creating a major third player to challenge Verizon and AT&T. Also, earlier this week, Dish Network's Charlie Ergen said his company would not meddle with a T-Mobile/Sprint deal. Dish Network has been trying to break into the wireless industry for some time; last year, Dish tried (and failed) to merge with Sprint.

Regulators, however, could block the deal, as they did with AT&T's attempt to acquire T-Mobile. Still, it appears investors are hopeful.

Sam Mattera has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$34,429.88 (0.10%) $34.87
Sprint Stock Quote
T-Mobile Us Stock Quote
T-Mobile Us
$152.41 (0.40%) $0.60
Verizon Communications Stock Quote
Verizon Communications
$38.18 (-0.39%) $0.15
Netflix Stock Quote
$320.41 (1.09%) $3.46
AT&T Stock Quote
$19.02 (-0.89%) $0.17
DISH Network Stock Quote
DISH Network
$15.56 (-0.19%) $0.03

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

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