Dowpocalypse Now! Dow Nears Negative Territory in 2012

As investors, we just can't have nice things. No sooner had the Dow Jones (INDEX: ^DJI) notched its best performance in a quarter since 1998 that a vicious drop across May resulted in gains of just 1.2% year to date. That's a steep haircut off the first-quarter rally. Feel free to blame Europe for the plummet.

Likewise, the Nasdaq (INDEX: ^IXIC) has also been severely punished during May. However, its first quarter was also even stronger than the Dow's amazing performance. It had a better quarter than anytime during the tech bubble (!), positing its best gain since 1991. The Nasdaq is still enjoying a much better year than the Dow, up 7.8%, but quite a bit of that outperformance is explained by Apple and its 38% rise on the year. The Dow Jones lacks Apple, which accounts for nearly 19% of the Nasdaq.

With the steep market sell-off in full swing, I'm taking a look back at two predictions I made during the first quarter of the year. One looks prescient, and on the other I'm admitting a mistake.

Prediction No. 1: Tech stocks look weak
In an article at the end of the first quarter, I noted that the tech rally was showing "some signs of running out of steam." I noted that while tech earnings grew a massive 17.1%, without Apple that number would have been only 4.8%. Simply put, tech companies outside of Apple weren't executing by and large. That was an ominous sign when the Nasdaq had just notched a 19% gain on the quarter.

Fast-forward to today and weak earnings from Cisco (NAS: CSCO) and Dell have investors worried that tech spending is about to flatline. However, this sell-off might present some opportunities.

Think about it for a minute: The market is reacting to poor earnings from Cisco and Dell, two chronically underperforming tech stocks from the past five years. That's also led to a sell-off among more high-quality companies like EMC, which continue executing. My advice: Watch NetApp's (NAS: NTAP) earnings tonight. If they're showing as much weakness as Cisco and Dell, Europe has in fact done enough damage to pull back even high-quality tech companies. Tech ran ahead of itself last quarter, but if there's a very broad sell-off, that could lead to some opportunities among companies who are actually executing.

Prediction No. 2: Buy Caterpillar, not AT&T
In another article posted during the first quarter, I highlighted the growing imbalance in growth between companies with huge global opportunities and those who were constrained to America. I specifically called out Caterpillar (NYS: CAT) as a good opportunity and AT&T as a potential laggard into the future. Since that call, Caterpillar is down 17% while AT&T is up 10%.

Obviously, we're not ones to get too hung up on a few months worth of returns at the Fool; we're looking for long-term excellence and trends. However, I have to admit that I think there was a blunder in my analysis. While I do think looking for companies with a global growth story is pre-eminently important to investors across the next decade, you also need to look for the right kind of growth. In my opinion, Caterpillar's reliance on infrastructure spending across China and Asia could put it at a disadvantage to great consumer brands like Nike that will benefit as China reorients toward consumer spending. I think the broader point of that article still stands, but investors should look to great consumer brands like Nike and even McDonald's to take full advantage of this trend across the next decade.

Great ideas for global growth!
That's it for today's market checkup. If you're looking for a way to still take advantages of global opportunities like growth in China, but are also concerned about Europe stalling, we've created a report just for you titled "3 American Companies Set to Dominate the World." In it, Fool analysts select three companies with diversified international growth opportunities across the entire globe that are simply stunning. The report is free, but won't be available forever, so get your copy by clicking here today!

At the time this article was published Eric Bleeker owns shares of EMC. The Motley Fool owns shares of Cisco Systems and EMC. The Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Dell, Apple, Nike, and McDonald's. Motley Fool newsletter services have also recommended creating a bull call spread position in Apple and a diagonal call position in Nike. The Motley Fool has a disclosure policy.
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