Why the Dow Dropped More Than 100 Points


Blue-chip stocks are broadly lower this afternoon after consumer sentiment came in lower than expected this month and as anticipation builds over the outcome of the Federal Reserve's meeting next week. With roughly an hour left in the trading session, the Dow Jones Industrial Average is off by 106 points, or 0.7%.

A report issued this morning by the University of Michigan/Thomson Reuters indicated that consumer confidence headed down this month after reaching a six-year high in May. The reading on its consumer sentiment index came in at 82.7 compared with last month's 84.5. According to Bloomberg News, the consensus estimate among economists was for an 84.5 figure.

Also out today were results from the Bureau of Labor Statistics' latest producer price index. As my colleague Dan Caplinger discussed here, the PPI "measures the changes in prices that manufacturers initially receive for goods and services, typically from other businesses." This distinguishes it from the more widely followed consumer price index, which as Dan also notes is what most people think of when it comes to inflation. For the month of May, the BLS estimated that producer prices rose by 0.5%. Meanwhile, the consensus estimate called for an increase of 0.1%.

Last but certainly not least, a growing sense of anxiety has been permeating the markets over the last few weeks as investors and traders contemplate whether the Fed will begin reducing its support for the economy via monetary easing. The chairman of the central bank, Ben Bernanke, made comments last month that many interpreted to mean that the Fed could begin scaling back its open-market bond purchases at its next "few meetings." Famed investor Warren Buffett has said that the announcement of a pullback will be akin to the "shot heard round the world."

In terms of individual stocks, American Express is currently leading the Dow down, as its shares are off by 2.5% at the time of this writing. Fellow Fool Matt Thalman is attributing this performance to an analyst downgrade. Barclays lowered its rating on the credit card company's stock to "equal weight" from "overweight." Though, as Matt observed, the U.K.-based bank nevertheless raised its price target on American Express from $72 per share to $82.

Alternatively, shares of Verizon are up by 0.9%, making it the best performing stock on the blue-chip index this afternoon. The impetus here is likely related to President Obama's directive that federal agencies look for ways to increase the amount of spectrum available for wireless broadband. Verizon responded to the announcement by saying: "Today's presidential memorandum is another positive step toward setting a national spectrum policy... We thank the administration for laying out a clear path that will help bring more spectrum to consumers of wireless services, where it will allow the U.S. to maintain its global leadership position in wireless innovation. "

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John Maxfield has no position in any stocks mentioned. The Motley Fool recommends American Express. 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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