The Dow Bounced Back: Here's Why
At first glance, the Dow Jones Industrial Average's (INDEX: ^DJI) modest 15-point drop makes it sound as if nothing of importance happened today. But with China announcing a potential economic slowdown and continuing worries about high energy costs taking their toll in the United States, the amazing thing about today is that the Dow bounced back from nearly a 100-point loss to get back to its closing level.
The weakest performers were economically sensitive stocks. Alcoa (NYS: AA) was the biggest loser of the day, dropping more than 3.5%. Steelmakers also saw their shares take a hit, as industrial metal-makers need general economic strength to sustain their production levels and justify the huge capital investments necessary to remain profitable.
Caterpillar (NYS: CAT) also fell more than 2% as shareholders weighed the impact of slower Chinese growth. Caterpillar suffers two ways when China slows; not only does it have plenty of direct business in the emerging country, but it also serves mining companies around the world that rely on China to buy their products.
In contrast, news pushed some stocks up. Verizon (NYS: VZ) rose nearly 1% after filing a response with the FCC, which is overseeing its proposed deal with several cable companies to buy valuable wireless spectrum for about $3.9 billion. At issue are cross-promotional agreements in which the mobile providers and cable companies agree to market each other's products. Both Verizon and AT&T (NYS: T) have such arrangements with their partners, and Verizon argues that the agreements are beyond the FCC's normal scope of review.
Meanwhile, Merckclimbed more than 1% despite saying that the FDA failed to approve its combination cholesterol drug. Promising phase 3 data from another drug apparently outweighed the bad news.
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