Dow Drops Again: What You Need to Know


During the summer and early fall, many investors looked at the market's nearly straight-up path and argued that a correction was overdue. After four straight weeks of declines for the Dow Jones Industrials (INDEX: ^DJI) , it appears that that correction may finally be here. The Dow fell another 1.8% this week, with most people blaming the losses on continuing uncertainty about the fiscal cliff. Yet another issue may simply be that many individual stocks, including some prominent market leaders, had seen their prices get quite extended. In the long run, a pause in upward movement may actually be more bullish than a straight-up moonshot.

Despite the Dow's decline, five of the Dow's components bucked the trend and moved higher. Cisco Systems (NAS: CSCO) was the big winner, rising 7% after the company released a favorable quarterly earnings report, beating estimates and reassuring investors who had thought that the networking industry leader might never get back its mojo. With wireless equipment sales soaring and video streaming equipment also gaining traction, Cisco seems to have its finger back on the pulse of the tech industry.

But decliners overwhelmed the few advancing stocks. Microsoft (NAS: MSFT) dropped more than 7% as the unexpected departure of Windows executive Steven Sinofsky raises questions about how the launch of Windows 8 is really going. Combined with what CEO Steve Ballmer called a "modest start" for its Surface tablet because of supply concerns, Microsoft is once again failing to inspire the confidence that so many of its shareholders desperately want to see.

Wal-Mart (NYS: WMT) also took a big hit, falling 6% for the week. Not only did the retailer fail to dazzle investors with its third-quarter report, but it also said the SEC will investigate the company in Mexico, Brazil, India, and China. It's unclear what may be lurking behind the shadows at the company, but one thing is certain: The holiday season has already begun, and the competition will be fierce.

Finally, Hewlett-Packard (NYS: HPQ) fell more than 5.5% as the bad news in the PC industry continues. With a scary quarterly report from PC rival Dell, it's now more important than ever for HP to find an alternative to the apparently dying PC market. That'll be tough to do, but if HP can turn things around, the stock has plenty of room to soar higher.

Stick with a winner
Winning stocks in a losing week are always worth a second look. Cisco is clearly on a winning streak, but after the stock's big move, is Cisco still a buy? Get the lowdown on the routing juggernaut in The Motley Fool's premium report, which has you covered with a full year of free analyst updates to keep you informed as its story changes, so click here now to read more.

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Fool contributor Dan Caplinger has no positions in the stocks mentioned above. The Motley Fool owns shares of Microsoft. Motley Fool newsletter services recommend Dell and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published