Why's the Dow Plunging This Time?
If you'd hoped that Monday's bounce for the stock market marked a break from big declines for a while, this morning's big drop comes as a big disappointment. The saga of Greece's possible exit from the eurozone is rapidly reaching Homeric-epic length, while closer to home, a weak earnings report from Dell also highlighted the fragility among many stocks right now. At around 10:45 a.m. EDT, the Dow Jones Industrial Average (INDEX: ^DJI) was down more than 170 points, pulling the Nasdaq and S&P 500 down sharply with it. All 30 Dow components traded lower.
Dell's not in the Dow, but many of the tech stocks in the average were among its worst performers in morning trading. Hewlett-Packard (NYS: HPQ) fell almost 5% in advance of its own earnings report. Given HP's heavy presence in the PC business, investors likely believe that Dell's weak results and pessimistic forecast concerning IT spending bode ill for HP as well.
Meanwhile, Microsoft (NAS: MSFT) and Intel (NAS: INTC) were both down more than 3%. Despite attempts to broaden its reach into alternatives like mobile chips, Intel still relies heavily on its core PC chip business. When Intel-users like Dell and HP see drops in hardware sales, Intel suffers direct consequences as well. Meanwhile, Microsoft's software may seem one step removed from PC sales, but given that nearly all computer buyers stick with whatever operating system comes pre-installed on their computers, Microsoft needs good PC sales in order to support its own revenue. Although Microsoft is counting on its Windows 8 release later this year to boost sales, it still needs healthy PC demand to provide a platform for the operating system.
American Express was also down sharply, falling more than 2% despite yesterday's news that Zynga (NAS: ZNGA) had reached an agreement with the card company to issue a prepaid card usable to redeem virtual game credits. The move is an interesting one, but with social media stocks under heavy pressure right now, it's hard to be optimistic about how much of a positive impact this would have for AmEx.
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At the time this article was published Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool owns shares of Intel and Microsoft. Motley Fool newsletter services have recommended buying shares of Intel, Dell, and Microsoft, as well as writing a covered strangle position on American Express and creating a bull call spread position on Microsoft. 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 Fool has a disclosure policy.
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