Changing Timelines Are Killing the Dow Jones Industrial Average (.DJI)’s Momentum

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The market is fixated. Trying to determine when the Federal Reserve will begin its tapering of the current stimulus policy is all the rage. And with new sound bites coming out every day, it’s no wonder that investors can’t make up their minds. But the Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI), along with Mr. Market in general, is suffering for it. After a three-day rally, the index is down 33 points as of 11:30 a.m. EDT.

Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI)

He said, he said
Of course, we all know by now what Ben Bernanke said last week: The Fed will determine its next move based on the economic data it sees, with the timeline set for the policy to end sometime next year. Cue panic. But when New York Federal Reserve President William Dudley noted that the presence of more negative economic data could result in more aggressive stimulus, the markets rejoiced. Now, Federal Reserve Governor Jeremy Stein has indicated that the taper could begin in September, and noted that the Fed will be using cumulative data to determine the progress of the economic recovery.

So what do we get from all of this? Any change will be based on data, but not just the most recent data. For investors, this gives a great directive: Don’t trade based on the most recent economic report’s implication of the recovery’s progress. While we’ve been seeing negative market reactions to lower unemployment claims or higher manufacturing data, the swings are an unnecessary stress on the average investor.

It has been well noted that the transition from the current stimulus-influenced market conditions to a more normalized environment will be volatile. But what investors need to remember is that fear and herd mentality will exaggerate that volatility. Keep an eye on your investments, but remain focused on their fundamental strengths and weaknesses, not the everyday moves of the market because of new speculation.

Common problem
Headlines can be a serious drain on a stock’s performance — especially if they continually highlight one of the business’s biggest issues. Bank of America Corp (NYSE:BAC) is no stranger to the potency of headlines. With legal problems posing one of the bank’s biggest threats, the repeated presence of the bank’s name in the news can certainly keep investors away.

New information has surfaced about the bank’s ongoing battle over a $8.5 billion settlement with investors. Though the hearing to decide the settlement’s fate is on hold while the presiding judge hears other cases, action continues behind the scenes.

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