Why the Dow Was Up Triple Digits Again This Morning
If you ever thought the efficient-market hypothesis worked well, today should dissuade you. Sure, the stock market got a bump from the Federal Reserve's decision yesterday to implement the long-anticipated QE3 bond-buying program. But today's move just looks like more follow-through from Fed-related bullishness, as if something about the third round of quantitative easing makes investors think it will work better than the first two. Regardless, the Dow Jones Industrials (INDEX: ^DJI) roared higher, rising more than 100 points before settling back to a more modest 74-point gain at around 10:45 a.m. EDT.
Among Dow stocks, the big news of the morning came when the committee overseeing the Dow decided to replace Kraftwith UnitedHealth Group. The change will take effect after next Friday's close.
As you've probably come to expect on a big bull day for the Dow, economically sensitive stocks led the way higher. But missing the wave up were pharma stocks Pfizer (NYS: PFE) and Merck (NYS: MRK) , which dropped 2% and 1.5%, respectively. Neither company had any apparent news justifying the move, but one explanation may simply be that pharma stocks are seen as more slow-growth, defensive names that aren't likely to perform as well in a big bull-market rally as more volatile, high-growth stocks.
AT&T (NYS: T) and Verizon (NYS: VZ) also lost ground, both dropping around 2% after a Stifel Nicolaus analyst downgraded both stocks. The analyst cited earnings pressure from the iPhone 5 release, which led him to reduce full-year profit estimates for both companies. Yet while AT&T and Verizon may take an earnings hit in the short run, the iPhone could easily produce blockbuster long-term profits, especially if the companies' efforts to beef up revenue from their data plans bear fruit.
Short-term melt-ups are always fun, but the good times won't last forever. When the music stops, you'll want to have solid stocks in your portfolio. Get some ideas about what you should own from the Motley Fool's special report on the Dow, where you'll discover three promising Dow stocks with great prospects for the future. The report is absolutely free, so get your copy today.
The article Why the Dow Was Up Triple Digits Again This Morning originally appeared on Fool.com.
Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. You can follow him on Twitter @DanCaplinger. Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position in UnitedHealth Group. 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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