Why the Dow's Telecoms Missed the Market's Party


It's too early to tell if today's nice jump for the Dow Jones Industrials will prove to be another example of the bull market's resilience or just a small bounce in what could become a larger pullback for the soaring average. But the 158-point gain recovered more than half of the Dow's losses from yesterday, as positive news on the earnings front and signs that consumer prices remain firmly under control gave investors some comfort that the economy can still push ahead from here. Broader averages rose even more sharply, with gains of almost 1.5% on the day for the S&P 500.

Although 28 of the Dow's 30 stocks rose, both of its telecom components missed out on the gains. Verizon dropped about 0.4%, while AT&T posted just a minimal $0.01 decline in its stock price. For years, investors have hoped that the two Dow telecoms would eventually become a functional duopoly, dividing the vast bulk of the U.S. market between them and giving each other substantial latitude to set prices and reap profits. That outcome seemed much more likely when AT&T's proposal to buy T-Mobile and Sprint seemed to be fading into the sunset. But the recent bidding war for Sprint between DISH Network and Japan's Softbank has made it clear that it's not going away anytime soon, while a merger between T-Mobile and MetroPCS should reinvigorate the No. 4 carrier as well. Combined with regulatory efforts to give Sprint and T-Mobile advantages over AT&T and Verizon in an upcoming spectrum auction, the dominant telecoms are seeing pressure they'd hoped to avoid.

Elsewhere, losers were few and far between, but many gold stocks remained under pressure as the yellow metal only managed a modest bounce after yesterday's plunge. In particular, major producer Barrick Gold and gold miner IAMGOLD fell between 4% and 5%. Both companies were on the list of holdings of billionaire hedge fund investor John Paulson's gold fund as of Dec. 31, and with rumors circulating that Paulson may have to liquidate positions to handle coming redemption requests, the stocks that he reportedly owns could see further selling pressure even if gold bullion prices rise.

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The article Why the Dow's Telecoms Missed the Market's Party originally appeared on Fool.com.

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