Why the Dow's Been Crazy This Week

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2012 had been a great year for the Dow Jones Industrial Average (INDEX: ^DJI) . The index went up as smoothly as an escalator in the first quarter, gaining 8% with hardly any of its usual dips. The S&P 500 Volatility Index (INDEX: ^VIX) , widely followed as the best measure of major market movements, dropped 25% from around 20 to near 15.

The perfect storm
Cue a left hook from a bad employment report and an upper cut from European bondholders, and the market was back on the mat, a ten-count from the ref echoing in its ear.

Word from the Federal Reserve that it was unlikely to pump more money into the economy had already made last week a loser for investors, and Friday's news that the U.S. added nearly 100,000 fewer jobs than expected spoiled a long Easter weekend for market-watchers. The Dow opened down 1% Monday and didn't move much during trading. Just when it looked like things couldn't get any worse, the blue chips dropped another 200 points on Tuesday as Europe digested the underwhelming jobs numbers and debt worries simmered again, particularly in Spain. Yields on Spanish 10-year bonds rose to 5.81%, representing a 4.11% premium over the benchmark German treasuries. This was the largest spread since December. Investors are particularly concerned that Spain's 23% unemployment rate and 1.7% contraction rate in its economy expected this year will force the EU to give it a bailout.


Back on its feet
Alcoa
(NYS: AA) kicked off earnings season with a much-needed home run after markets closed Tuesday. Analysts were expecting a $0.04 EPS loss from the aluminum maker due to low prices and oversupply of the commodity, but the Pittsburgh-based manufacturer surprised with a profit of $0.10 per share and beat revenue expectations. It also maintained a projection of a solid 7% growth rate in aluminum demand this year. Alcoa's report and improved bond yields in Spain and Italy helped the Dow open 100 points higher, where it hovered for the duration of Wednesday's session.

International reports have again on bolstered the market today, as the Dow climbed 1.3% during trading. Investors appeared to react favorably to an Italian bond auction, which filled Rome's coffers with nearly 5 billion more euros. Also, the World Bank said it expects China's economy to grow by 8.2% this year. The global financial institution signaled confidence in a so-called "soft landing" by the world's No. 2 economy, which helped reassure investors.

Not out of the woods yet
With Google (NAS: GOOG) , JPMorgan Chase (NYS: JPM) , and Wells Fargo set to report earnings between close of trading today and tomorrow's opening bell, the market could see plenty more turbulence before the end of the week. Google reports after markets close today, and analysts are expecting a profit of $9.65 per share. Following its last report, the search dynamo's shares dropped as the company missed on earnings and said its cost-per-click rate (what it charges advertises per click) declined for the first time in three years. Look for CPC to be a key factor in this afternoon's report. Next in line is JPMorgan Chase, which reports at 7 a.m. EDT tomorrow. The banking behemoth had an impressive first quarter as shares moved up 20% and it raised its dividend. Analysts are looking for $1.18 in EPS from JPMorgan Chase and $0.73 from Wells Fargo. Expect the financial sector to move accordingly.

Stay calm
Earnings season tends to come with a wave of anticipation and this quarter is no different. Alcoa's gotten the ball rolling, but there are plenty more big names investors should be keeping an eye out for. Our experts have singled out five stocks whose earnings reports will not only say a great deal about their future prospects but also of the economy as a whole. The information they present could be crucial to a number of investing decisions you're likely to make. Find out what these bellwether stocks are and why they're so important in the Fool's brand-new special free report: "5 Stocks Investors Need to Watch This Earnings Season." Get your free copy while it's still hot. Just click right here.

At the time this article was published Fool contributorJeremy Bowmanowns shares of Google but holds no other positions in the companies in this article. The Motley Fool owns shares of JPMorgan Chase and Google. The Fool owns shares of and has created a covered strangle position in Wells Fargo.Motley Fool newsletter services have recommended buying shares of Wells Fargo and Google. The Motley Fool has a disclosure policy.
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