Why the Dow Dropped


The Dow Jones Industrial Average fell slightly today, down 36 points, or 0.3%, as investors reacted to President Obama's State of the Union address last nigh and the sluggish retail sales report this morning. Despite the Dow's drop, the Nasdaq and S&P 500 still managed small gains for the day.

Among other initiatives, the president proposed an increase in the federal minimum wage to $9 from $7.25, comprehensive immigration reform, new gun control legislation, and funding for early childhood education.

Retail sales grew just 0.1% in January as consumers reacted to the 2% increase in payroll taxes and higher gas prices. Still, economists had expected scaled-back growth in the sector, but believe consumer spending will continue to grow as housing prices bounce back, the job market improves, and stocks approach an all-time high.

Reporting after hours, Cisco Systems shares dropped more than 3% despite beating estimates on top and bottom lines. The world's largest provider of networking services grew revenues by 5% to $12.1 billion, better than the $12.06 billion Wall Street expected, and delivered an adjusted EPS of 51 cents, against estimates of 48 cents. The market seemed to expect Cisco to beat estimates. EPS guidance next quarter of 48 to 50 cents was in line with analyst projections.

General Electric was the Dow's big winner today, climbing 3.6% after announcing last night that it would sell its remaining 49% stake in NBCUniversal to Comcast for $16.7 billion. Investors applauded both sides of the deal as Comcast gained 3% on the day, though its shares slipped over the course of the session. The sale will allow GE to enhance its focus on its traditional industrial core and return more cash to shareholders, which the conglomerate plans to do by buying back $10 billion worth of shares this year.

Meanwhile, McDonald's led the laggards, falling 1.2% on slow retail sales and the prospects of a minimum-wage increase. More than nearly any other industry, restaurants rely on low-wage labor, and labor costs can make up more than 20% of revenues. The raise in the payroll tax is also taking money out of the pockets of McDonald's customers, and another report showed that diners plan to spend less at restaurants this year. The Golden Arches accounted for a quarter of the Dow's decline today.

The article Why the Dow Dropped originally appeared on Fool.com.

Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems and McDonald's, and owns shares of General Electric and McDonald's. 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 Motley Fool has a disclosure policy.

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