Stocks Calm as Earnings Season Nears

Major market indices closed higher on Friday–with the S&P and Nasdaq both gaining 1%–as Wall Street headed home for the 4th of July weekend.

Stocks jumped after the US Government reported 195,000 new jobs for June, a sign that the economic recovery is here to stay. Perhaps a bit more unnerving is that bond investors took the report as a precursor that the Fed may taper its quantitative easing, and raise interest rates. As such, Treasury yields on 10-year bonds creeped up past 2.7%.

With another earnings season to kick off on Monday (aluminum producer Alcoa will report after market close), it’s hard to predict which direction stocks will go from here. On one hand, analysts have already priced in effects of the sequester, so companies may exceed their earnings consensus. But considering that more positive news usually equates to the Federal Reserve edging closer to ending QE, stocks may yet disappoint.

But since there already seems to be a bond sell off underway, perhaps it’s time to get into the corporate bond market. Especially since yields have increased–while official interest rates haven’t budged–short maturity bonds may be a better deal than stocking away cash at the bank.

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