Dollars and Sense: Market movement continues to push toward record territory

Earning notice. Even though it’s still earnings season, earnings reports didn’t seem to drive the business news this week, or this quarter, for that matter. Part of the reason is that we have seen few surprises this earnings season, with announcements coming in as expected. Analysts and traders follow these stocks so closely that when a company releases earnings, the reports usually just confirm what they already know. The price of the stock usually already reflects the reports—it’s “baked in,” as the pundits often say. It’s the surprises that tend to move the markets, and we haven’t had many this earnings cycle.

Yet, the markets move. But as we’ve said for several weeks, volatility has actually increased over the past two months, so what’s causing that? The obvious answer is: News other than earnings. On Monday, for example, news from Italy drove markets higher around the world. Italy formed a government and ended two months of political uncertainty. Italy's new Prime Minister Enrico Letta gave an inaugural speech that pointed toward growth and away from austerity. That lifted hopes for further stimulus from the European Central Bank. Here at home, a report showed contracts to buy previously owned homes rose last month to their highest level since April 2010, indicating underlying strength in the housing market recovery. A separate report said home prices also rose.

Who cares? So why do these reports matter? The Dow has more than doubled since 2009, and is up 20 percent in the past year alone. In part because the markets have climbed so high in what has been a weak economy, traders fear we’re in bubble territory, so they’re constantly on the lookout for news that might signal a correction. Macroeconomic reports are getting more scrutiny. Take Tuesday, for example: Stocks opened sharply lower after a government report said business activity in the Midwest unexpectedly contracted in April to its lowest level since 2009. But they quickly recovered when a separate report said consumer confidence rebounded in April. So if you just looked at the open and close for the Dow, you would have seen that it rose less than 40 points and you might have thought it was a quiet day. But it fell 60 points in the first hour after opening, and gained 80 points in the second hour. It continued to creep up during the rest of the day.

Jobs news. The job market also produced news and movement in the market this week. On Wednesday, payroll processor ADP said private employers added 119,000 jobs in April. That was well below expectations. But then on Thursday we got a good report from the Labor Department. The number of Americans filing new claims for jobless benefits fell sharply last week to a five-year low. On Friday, we got April’s official numbers: Unemployment fell to 7.5 percent and the economy added 165,000 new jobs. That’s still not great, but most analysts thought it was a step in the right direction, and stocks rose sharply after the announcement.