Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Microsoft Corporation (MSFT), The Home Depot, Inc. (HD): Strong Economic Data Sends Bond Yields Higher

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.

Microsoft Corporation (NASDAQ:MSFT)

This morning the Department of Commerce released data on July’s retail sales. Excluding cars, gasoline, and building materials, sales grew at the fastest rate in seven months. Total sales from May through July were up 5.2% from the same period a year ago, while retail and food services sales for July were up 0.2% from June and 5.4% from July 2012. Automobile sales were up 13.3% from the same time last year, while nonstore retailers were up 8.8% from July 2012. These numbers are great, and in most cases they beat analysts’ estimates.

So why are the markets falling? The retail sales numbers are a sign that the economy is improving and that in the coming months, American businesses will likely post higher sales and profits for the third quarter. But that all comes with a downside, which is the Federal Reserve. The better the economic data looks, the sooner the Fed will begin winding down its bond-buying program. That, in turn, will send interest rates higher, making the days of cheap money a thing of the past and perhaps slowing the economic recovery.

The fear that “tapering” will soon begin is clear today, as bond yields are on the rise, with the five-year moving from 1.37% yesterday to 1.47% today, the 10 year climbing from 2.6% to 2.71%, and the 30-year rising from 3.67% to 3.76%. And as bond yields move higher today, so do the stock markets. As of 12:55 p.m. EDT the Dow Jones Industrial Average 2 Minute (INDEXDJX:^DJI) is up 0.32% after spending the morning in the red. The S&P 500 and the Nasdaq have also recovered from morning dips to gain 0.25% and 0.18%, respectively.

A few Dow Jones Industrial Average 2 Minute (INDEXDJX:^DJI) losers
As we recently saw in Travelers second-quarter earnings report, the company is highly susceptible to rising bond yields. During the quarter the company’s book value fell because of its bond portfolio losses, and with rates again moving higher today, investors are selling Travelers stock.

Another company feeling the effects of rising interest rates is The Home Depot, Inc. (NYSE:HD), down 0.6%. Because the company is strongly tied to the housing market and many believe rising interest rates will slow the rise of housing sales and prices, investors may be backing off the stock, which has had quite the run in 2013. Year to date, shares of The Home Depot, Inc. (NYSE:HD) are up 27%, while the Dow Jones Industrial Average 2 Minute (INDEXDJX:^DJI) has only risen 17.7%.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.