The Dow Jones Industrial Average is up after inflation came in low, signaling that the Fed will likely continue its quantitative-easing program. As of 1:25 p.m. EDT the Dow is up 126 points, or 0.83%, to 15,306. The S&P 500 is up 0.7% to 1,650.
There were two U.S. economic releases today.
|Consumer Price Index||May||0.1%||(0.4%)|
Investors are anxiously awaiting the Federal Open Market Committee statement that will be released tomorrow at 2 p.m. EDT. Currently, as part of its quantitative-easing program, the Federal Reserve is purchasing $85 billion worth of long-term assets each month in an effort to keep rates down and the economy moving forward. The Fed is trying not to surprise investors and has said it will keep the purchases going until unemployment falls to 6.5%, inflation rises past the Fed’s target range, or long-term inflation expectations take off.
Investors got some news today on the second of those three. Earlier today the Department of Labor reported that the Consumer Price Index rose 0.1% in May for a year-over-year change of 1.4%. Core CPI, which excludes food and energy prices, rose 0.2% for a year-over-year change of 1.7%.
While many investors track the CPI as their favored measure of inflation, the Fed’s favorite measure is the Department of Commerce’s price index for personal-consumption expenditure, or PCE, which has been trending lower than the CPI the past year. We have to wait until the end of the month for the Department of Commerce to release May figures for the PCE, which is expected to remain well below the Fed’s 2% to 2.5% target.
In other news, housing starts rose a seasonally adjusted 58,000 in May to 914,000 but missed analyst expectations of 953,000. It’s important to note that housing starts are continuing their slow trend back toward their historical average of 1.5 million. The housing market has been slowly recovering and signs appear that it is getting stronger. Yesterday, the National Association of Home Builders reported that for the first time in more than six years, more homebuilders were optimistic about the housing market than were pessimistic.
One Dow stock winning big
American Express Company (NYSE:AXP) is among the Dow’s leading stocks today, up 1.6%. American Express Company (NYSE:AXP) stock hit an all-time high last Monday of $78.61 but then became the worst-performing Dow stock of the week, losing 5.2% after a downgrade from Barclays. There is a large “wealth effect” that comes with an improving housing market, which means people feel wealthier as their home value rises and therefore spend more. This is good news for American Express Company (NYSE:AXP) and rival payment processors Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA). It’s doubly good for American Express, which not only processes transactions but also extends credit to its customers, whereas Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA) work with banks who extend credit. The different business models can be seen in a recent table from Visa’s annual report.