Dow Continues On Its Upward Path

On 11.12.09, In Daily Briefings

On Wednesday the Dow increased by 44 points (0.4%) to close at 10,291.26. Other indices like S&P and Nasdaq also showed a gain. With an increase of 6 points S&P closed at 1,098.51 while Nasdaq composite closed at 2,166.90 registering an increase of 16 points.

Sector wise nine of the 10 major sectors registered a gain on Wednesday with the Utilities being the only sector to register a marginal fall of 0.3%. The sectors which gained include Financials(up by 1.4%), Materials (up by 0.9%), Technology (up by 0.6%), Consumer Discretionary (up by 0.5%), Industrials (up by 0.5%), Consumer Staples (up by 0.3%), Telecom (up by 0.2%), Health Care (up by 0.2%) and Energy (up by 0.1%).

The factors which till yesterday drove the markets were very much at play further helping the market on its upward path. Yesterday Fed again reinforced the fact that the economy is on a recovery path and that it plans to continue keeping the interest rates low to help the recovery. This further cemented the thought in investors mind that interest rate will continue to be low at least in the short run. Policy change on Fed’s part is not expected at least in the foreseeable future. This expectation of low interest rate supported the market.

Many analysts are however surprised by the market’s indifference to the high unemployment rate of 10% announced last week. Markets typically move inversely to unemployment rate with high unemployment rate bringing down the markets. This is because more unemployed people means less spending and less spending impacts the bottom-line of the company.

But the current stock market rally has proved to be an exception to this rule of thumb with markets not reacting much to the high unemployment number. This could probably be because given the current economic scenario high unemployment number has not come as a surprise. Investors are probably reading between the numbers and perceiving that things are not as bad as they are currently made out by these numbers.

Going forward many analysts feel that the market will continue on its upward path. The only possible shock for the market could be increase in interest rate which many analyst don’t see happening atleast in early 2010.