The Cliff Has Stock Investors Losing Confidence


With the politicians in Washington continuing to fight over a solution to the fiscal cliff, the Dow Jones Industrial Average lost 120 points, or 0.91%, today. As a few of my colleagues pointed out today, most market participants were probably expecting a much larger decline, and even after today's fall, the Dow is still up 0.41% for the week and 7.97% for the year.

Regardless of what happens with the fiscal cliff, the key to profitable investing is keeping emotions out of the decision-making process. If the market falls 100 points every day next week or even 1,000 points in one day if we fall off the fiscal cliff, just keep your head and don't make any rash decisions. By not selling at the bottom and perhaps even buying at the low points, this time next year, I'm sure your portfolio will be doing just fine.

With 28 of the Dow's 30 components in the red today, keeping calm isn't always easy to do. So let's take a look at a few of the Dow losers today to see why they fell. More than likely, they didn't stumble because their long-term business model changed since yesterday. Which simply means that for less money you can buy the same business today than you could have yesterday, all because you kept calm.

A few big losers
Shares of Caterpillar , ExxonMobil , and United Technologies all slid lower -- by 1.79%, 1.87% and 0.76%, respectively, today. Because most economists are expecting the U.S. to fall back into a recession if we go over the fiscal edge and all three companies' will take major hits if that happens, investors started selling off shares today.

Caterpillar is widely regarded as one of the best economic bellwethers. When either the U.S. or world economy is struggling, large construction projects come to a shrieking halt, therefore making large machinery less in demand and making companies or governments less likely to purchase new ones.

Similar to Caterpillar, ExxonMobil will see less demand if the U.S. is in another recession. When consumers feel the pain of a contracting economy, they usually drive less and take fewer vacations as ways to cut back on their spending. Demand for oil drops, and so do profits for the big oil companies like Exxon.

Shareholders of United Technologies began bailing today because of the automatic government spending cuts that will go into effect as part of the fiscal cliff. A large percentage of those spending cuts will hit government contractors and military suppliers, both categorizes that United Technologies falls into.

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Fool contributor Matt Thalman has no positions in the stocks mentioned above. The Motley Fool owns shares of ExxonMobil. 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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