What Pulled The Dow Up on a Scary Anniversary
With the stock market near multi-year highs, it's easy to forget just how far we've come in the past three years. Yet it was on this day in 2009 that stocks hit what would become their lowest levels of the bear market -- 6547.05, a point not then seen since April 1997 -- setting in motion a rebound that would let brave investors double their money.
The markets celebrated that anniversary with a quiet day, as the Dow Jones Industrials (INDEX: ^DJI) closed up just 14 points to close at 12,922. Good economic news and an apparently successful restructuring of Greek debt sent stocks much higher early on, but by the close, they had given back nearly all of their gains.
Some big news items hit large-caps. Starbucks (NAS: SBUX) vaulted nearly 3% higher after announcing last night that it would release a single-serve coffee maker that would go after Green Mountain's (NAS: GMCR) Keurig machine. Green Mountain fell more than 15% on the news, as fears that Starbucks' move marks only the beginning of a series of assaults on the Keurig as key K-Cup patents approach expiration later this year.
Where the real action was today, though, was in stocks of smaller companies. The Russell 2000 gained more than 1.3%, reversing what had been a disturbing trend of small-cap stocks underperforming the Dow and other large-company indexes. For instance, Molycorp (NYS: MCP) jumped 19% on news that it was buying Toronto's Neo Materials , which would create a vertically integrated giant in its small industry with the capacity both to mine and to process rare-earth metals.
Meanwhile, gun manufacturer Smith & Wesson (NAS: SWHC) soared 23% after reporting earnings. With a huge surge in backlogs, the company raised its forecast for full-year revenue. But perhaps most impressive is Smith & Wesson's big boost in gross margin, which rose by more than 6%.
Even though the Dow gets all the attention, it's small companies like Molycorp and Smith & Wesson that play a big role in where the stock market goes next. When the Dow rises without small-cap support, it raises fears that any large-cap strength is only temporary.
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At the time this article was published Fool contributorDan Caplingerdoesn't own shares of the companies mentioned. You can follow him on Twitterhere.Motley Fool newsletter serviceshave recommended buying shares of Green Mountain and Starbucks, as well as creating a lurking gator position in Green Mountain and writing covered calls on Starbucks. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Fool has adisclosure policy.
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