Why the Dow Dropped Today

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The market closed out the year on a slightly down note, with all three major indices falling.

Index

Change

Ending Value

Dow Jones Industrial Average (INDEX: ^DJI) -69.48 [-0.57%]12,217.56
S&P 500 (INDEX: ^GSPC) -5.42 [-0.43%]1,257.60
Nasdaq (INDEX: ^IXIC) -8.59 [ -0.33%]2.605.15

Why did the Dow and the rest of the market fall today? There wasn't any market-shaking news, so I'd chalk it up to the normal trading ebb and flow, accentuated by the year-end moves of the market's various investors.

Since it's the end of the year, let's take a step back to review how the market performed over the past 12 months.

The market as a whole was pretty flat. The Dow was up 5.5%. The S&P was almost perfectly flat (-0.002% when you take it out to three decimal places, if you're a stickler). And the Nasdaq was down 1.8%.

So, after 365 days of speculating about the fate of Europe, the U.S. debt downgrade, Congress' ability (or inability) to put aside partisan politics for the greater good, the status of housing and unemployment, and the future of China and Japan, the market ended up pretty much where it began.

The story gets more volatile at the company level.

In the Dow, the three biggest stock price winners were McDonald's [+31%], IBM [+25%], and Pfizer (NYS: PFE) [+24%].

Stretching out to the broader S&P 500, the winners were Cabot Oil & Gas [+101%], El Paso [+93%], and Intuitive Surgical (NAS: ISRG) [+80%].  

On the downside, the biggest Dow losers were Bank of America [-58%], Alcoa [-44%], and Hewlett-Packard (NYS: HPQ) [-39%].

For the S&P 500, the biggest losers were First Solar [-74%], Alpha Natural Resources [-66%], and Netflix (NAS: NFLX) [-61%].

We clearly see the moderation that comes with diversification as these wildly swinging stocks come together to form a flat market for 2011. It's why I advocate keeping a goodly portion of your portfolio broadly indexed for the long term. Even as I try to separate the individual stock winners and losers, I follow this advice myself.

That bit of cautionary advice out of the way, if you'd like an individual stock pick for 2012, The Motley Fool's chief investment officer selected one for our brand-new free report: "The Motley Fool's Top Stock for 2012." I invite you to take a copy, free for a limited time. Access the report and find out the name of this legendary company.

At the time this article was published Anand Chokkaveluowns shares of Intuitive Surgical, Pfizer, McDonald's, and Bank of America. The Motley Fool owns shares of First Solar, IBM and Bank of America.Motley Fool newsletter serviceshave recommended buying shares of Pfizer, Intuitive Surgical, Netflix, First Solar, and McDonald's. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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