Will This Morning's Dow Pause Lead to New Highs?

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Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

After three straight days of huge gains for the stock market, it's only natural to expect stocks to give back a little ground in the usual " two steps forward, one step back" routine. Yet after a small initial drop, the market managed to earn back its modest losses, with the major U.S. markets all within 0.1% of breakeven. Data showing falling first-time unemployment claims might usually have prompted gains, but a technical error likely exaggerated any improvement in the jobless numbers. Still, although the Dow Jones Industrials doesn't look like it will extend its streak of three straight triple-digit gains, it was keeping its head above water as of 10:55 a.m. EDT.

Even as the markets pause in their recent surge, they remain fairly close to record-high levels. As we pass the five-year anniversaries of critical events of the 2008 financial crisis, the economic recovery shows signs of continuing. Arguably, a more moderate pace of rising stock prices could lead to more sustainable long-term gains, potentially extending the length of the bull market even further.

Today's movers show the tug-of-war between bullish and bearish investors, however. United Technologies has posted an advance of more than 1%, extending the industrial conglomerate's rise to all-time record highs. United Tech's defense exposure could leave it vulnerable to a brief downturn if continued diplomatic efforts to avert a military strike on Syria bear fruit. But longer-term investors should focus on the company's successful efforts to bolster its position in serving the commercial aerospace industry. As demand for newer aircraft technology drives sales in coming years, United Tech's components and systems business should drive the entire company forward.

At the same time, many companies are struggling with industry innovation that threatens to leave them behind. Hewlett-Packard has fallen 0.4% after analysts at UBS reduced their price target and earnings estimates on the stock. Despite early successes, the measured pace of HP's turnaround efforts leave short-term investors struggling to see continuing progress. Meanwhile, PC rival Dell finally appears to be moving forward with its $25 billion going-private leveraged buyout by CEO Michael Dell and private-equity firm Silver Lake. Shareholders approved the deal after Carl Icahn withdrew a competing proposal. Now, HP will have to face a potential change in the competitive environment in the PC industry even as it strives to emphasize higher-margin segments.

Finally, though, it's important to remember that optimism is still high among many investors. Facebook hit all-time highs today, rising another 0.7% as investors get more comfortable with the social-media giant's ability to produce new advertising revenue even in the challenging mobile space. With the company's market cap above $110 billion, it's only a matter of time before index investors become default buyers of the now-inflated shares, which could spur the stock still higher, making for a stark contrast to its poor performance in the year following its IPO.

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The article Will This Morning's Dow Pause Lead to New Highs? 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 Facebook. The Motley Fool owns shares of Facebook. 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.

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