Why the Dow Rallied Today
Despite giving up much of its early gains, the Dow Jones Industrial Average (INDEX: ^DJI) closed at another multi-year high today. In total, the Dow added 20 points, to log a 0.2% return. On the heels of the U.S. Federal Reserve's third round of bond buying, which bears the colloquialism quantitative easing, U.S. stock markets have produced outsized performances over the last 48 hours. Similarly, both the S&P 500 and Nasdaq gained ground today, rising 0.2% and 0.8% respectively. Volatility posted a comeback today, after bets on it dropped precipitously yesterday, notching a 3.5% gain during the day's trading session.
Around the Markets
Among Dow components, industrial stock went on an absolute tear today. Caterpillar (NYS: CAT) and United Technologies (NYS: UTX) rallied 2.8% and 2.4%, respectively. Hope for stocks tied closely to the overall economy have received a nice boost from the Fed's QE3 announcement. The Fed, further demonstrating its willingness to prop up an increasingly sluggish economy, should, in theory, help bolster the performances of such companies.
On the downside, telecom giants AT&T (NYS: T) and Verizon Communications were among the worst performers on the Dow today. Both companies received downgrades from Stifel Nicholas' research arms, which cited possible margin compression coming from the expected sales glut that Apple's iPhone 5 will cause. In general, U.S. telecom companies heavily subsidize the costs of high demand devices, such as the iPhone, to entice consumers to sign lucrative multi-year service contracts. And, while generally a successful strategy for the major telecom players, eating much of the upfront purchase price can send margins quickly southbound.
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