The Dow Staves Off a Case of Cypriotitis

Negative pressure from Cyprus killed an early rally on housing starts today, and the Dow Jones Industrial Average essentially finished the session unchanged, gaining 4 points, or 0.03%. The S&P 500 and Nasdaq were less fortunate and both fell about 0.25%.

The Cypriot parliament voted decisively against a bailout plan that would have required those holding deposits in the island nation's banks to pay a percentage of their deposits for Cyprus to receive bailout funding. Though the idea that depositors would take a hit was anathema to world markets, the parliament's rejection forced a new round of uncertainty on investors, sending stocks downward this afternoon. Following the parliament's vote, the European Central Bank said it was still committed to finding a way to provide liquidity to Cyprus, though within limits.

The housing market, meanwhile, continued to drive stocks higher, as February housing starts and building permits both topped expectations at an annual rate of 917,000 and 946,000, respectively. Building permits reached their highest level since June 2008, and the economy also added 48,000 construction jobs, indicating that activity in the sector appears to be picking up.

Notably, the two best-performing Dow stocks today were the usually quiet consumer staples Coca-Cola and Procter & Gamble , rising 1.5% and 1.3%, respectively. There was no major news on either of these companies, but their gain today seemed to confirm the uncertainty injected into markets by the Cyprus chatter. Although the Dow fell more than 130 points from its morning high to its afternoon low, Coke and P&G made steady gains throughout the day, as investors turned to the relative safety the two stocks offer. While the continued success of Coke and P&G may not be as certain as saying the sun will come up tomorrow, their brand strength and distribution network make them among the best defensive plays around.

Conversely, Caterpillar and Alcoa were two of the worst performers, down 1.2% and 0.9%, as their macroeconomic sensitivity makes them potential losers in any carryover effect from Cyprus. These manufacturers are extremely dependent on foreign demand and have struggled as the China juggernaut mellows and Europe tries to escape recession.

Tomorrow, financial eyes will turn toward our own economy with the release of the Federal Reserve's interest-rate decision. While the central bank is likely to continue its bond-buying program, investors are always curious for any insight into Chairman Ben Bernanke thoughts on the economy and the Fed's actions.

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