With the news that President Obama will nominate current Federal Reserve Vice Chairperson Janet Yellen to succeed Ben Bernanke as the Federal Reserve Chairperson, the markets got off to a positive start this morning. However, that early bullish sentiment was underwhelming, partially due to some disappointing earnings releases and the continued, albeit tame, worries over the situation in Washington. Because of this, the major indices wavered throughout the day, but the Dow and S&P 500 were still able to close in positive ground.Stocks on the Rise
Shares of Men’s Wearhouse (MW) spiked today following the news that Jos. A. Bank made an offer to acquire the company for $2.3 billion. Even though the Board of Directors of Men’s Wearhouse said they were rejecting the proposal, investors are still causing the stock to rally nearly 28% on the day. Also rising higher today were shares of Alcoa (AA), Costco (COST), and RPM International (RPM), after these companies reported quarterly earnings that pleased investors.
In the red today were shares of Yum! Brands (YUM), ADTRAN (ADTN), and Family Dollar (FDO) after the three companies reported disappointing quarterly earnings. Shares of H&R Block (HRB) were also dragged lower after Republic Bank called off a deal to acquire bank assets from the company.
Moreover, shares of Precision Castparts (PCP) edged into negative territory due to Wall Street analysts’ downgrades.
Be sure to check the Dividend Daily for all the latest earnings reports, analyst moves, and much more.More on Janet Yellen
Most on Wall Street view Yellen as a “dove,” meaning that she is more likely to continue monetary stimulus in order to drive down unemployment. This is in contrast to the “hawks” who are more concerned with the effects that monetary policy has on price stability, otherwise known as inflation. The expectation that she will continue the Fed’s current bond buying program, known as quantitative easing, in order to boost the economy and curb unemployment helped futures rise early this morning. Stock investors have enjoyed the effects of the third round of quantitative easing over the past year, with the S&P 500 up more than 14% since last October. So, with the expectation that Yellen will lead the Fed in a similar manner of loose monetary policy, the thought is that stock investors will continue to benefit.
However, as I have said before, dividend investors would be wise to avoid getting too caught up in who is leading the Fed and what the Federal Reserve’s future policies will be when making investing decisions. While the Fed has had a huge impact on the markets in the past couple of years, to the benefit of investors already in the market, it does not mean that this sort of environment will last over the long-term. Remember, just because Yellen may be the chairperson of the Fed, it does not mean she will have the ability to unilaterally make monetary policy decisions; she will have to collaborate with the other members of the FOMC when constructing the future monetary policies for the U.S. President Obama still has more Federal Reserve Governor and President appointments to make in the near-term, and these members could help shape a monetary policy that does not necessarily mesh with the current expectation that the Yellen-led Fed will just keep the easy money spigot flowing. And don’t forget, Yellen and these other appointees must be confirmed by the U.S. Senate, which could end up being a circus in itself. Because of this, all those investors currently making bets with an expectation of endless monetary stimulus could end up getting burned.
As I say time and time gain, long-term, dividend investors should make decisions based on the fundamentals of your various investment possibilities, not on the endless external factors that could cloud your judgement and drag down a portfolio. Though the media noise stemming from events like the battles in Washington, European economic crises, or the Federal Reserve’s leadership and policies can easily impact your investing thought process, you must do your best to avoid basing your decisions on these events that you cannot control.
Thanks for reading. Be sure to check us out on Twitter @dividenddotcom. We will see you tomorrow!
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