Why the Dow's Ignoring These Warning Signs

Before you go, we thought you'd like these...
Before you go close icon

In what has become a common occurrence, the stock market is once again flirting with all-time record highs, with the Dow Jones Industrials up 42 points as of 10:55 a.m. EDT. Yet what's surprising about the rise is that it comes on the heels of some economic news that points to cracks in the bull market's armor. Today's reading of the Case-Shiller home price index showed gains of just 1% in May after seasonal adjustment, falling short of expectations. Consumer confidence figures fell more than expected in July despite upward revisions to the index's June figure. And given how important the consumer and housing sectors have been in the U.S. economy's recent recovery, any signs of weakness should have a bigger downward impact on stocks than they appear to be having today.

The big winner on the day is Cisco Systems , up 2.3%. The company got a nice surprise when networking-security company Sourcefire reported earnings last night, posting 29% year-over-year revenue growth and beating estimates for both top- and bottom-line growth. With Cisco having announced a week ago that it would buy Sourcefire for $2.7 billion, the news confirms Cisco's overall strategy of seeking out niche companies to acquire in order to create a more complete package of IT offerings for customers.

But energy stocks are losing out after BP reported a lower quarterly profit due to weak world oil prices. The impact on the Dow's energy giants was minimal, with Chevron and ExxonMobil losing less than 0.6%, but BP has fallen almost 4% as investors seem to question whether the company will ever fully recover from the massive financial devastation that the Gulf oil spill wrought.

Finally, Herbalife has climbed 3.2% after announcing record second-quarter earnings and boosting its guidance for the remainder of the year. An 18% gain in sales produced 8% higher net income, and a big reduction in share counts boosted earnings per share even further. Predictably, Herbalife critic Bill Ackman questioned the results as his losses betting against the company soared, but for now, at least, the company seems to be doing exactly what bullish investor Carl Icahn had hoped it would do.

Cisco and Herbalife couldn't be more different in their business models, but both have done a great job of making the most of their respective profit opportunities. You should follow their example, as your best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

The article Why the Dow's Ignoring These Warning Signs originally appeared on Fool.com.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Cisco Systems and Sourcefire. The Motley Fool has the following options: long January 2014 $50 calls on Herbalife. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

People are Reading