The Real Reason the Dow's Taking a Breather This Morning

After yesterday's big record push for the stock market, stocks are pulling back modestly today. Most analysts are pointing to economic data as justifying the pullback, with the latest figures from the federal government showing employment growth of just 162,000 jobs in July -- its lowest level in four months. Moreover, given a drop in labor participation and downward revisions for past months, it's far from clear whether rank-and-file Americans are truly benefiting from the recovery, even with the unemployment rate falling to 7.4%. By 10:55 a.m. EDT, the Dow Jones Industrials were down 49 points, or 0.31%, while the S&P 500 slipped 0.21% but held above the 1,700 level it achieved for the first time yesterday.

But the real reason behind the Dow's uncertainty has to do with the varied situations of different companies. On one hand, this morning's earnings report from Chevron sent the stock down 2%. The company's quarterly profit dropped 26%, falling far short of analyst expectations. This supports the idea that major oil and gas producers will face long-term challenges in sustaining the growth rates that the pace of new discoveries has created in the recent past. Given the extent to which the energy industry is seen driving a new era in American competitiveness, adverse trends that hurt energy companies are an important warning sign to consider not only for the industry, but for U.S. economic prospects more generally.

At the same time, though, some industries are looking a lot more favorable. DuPont added to its recent gains today, climbing more than 2% as investors continue to digest the possible implications of the company's purchase of a majority stake in South African company Pannar Seed. The agricultural industry has shown huge growth in the U.S., but the prospects in Africa are potentially even more lucrative, as untapped potential in the African ag market will require production-enhancing techniques in order to take maximum advantage. Such opportunities are likely why DuPont attracted the attention of investor Nelson Peltz, who reportedly bought a substantial position in DuPont recently. More broadly, they show the continuing promise of global growth as a key component of U.S. company strategy.

Investors also remain bullish about the prospects for technological advances throughout the economy. This morning LinkedIn has jumped almost 11% after it reported expectation-beating earnings and was upgraded by multiple brokers. LinkedIn reflects arguably the most successful impact that social media has had on the economy, helping facilitate employment opportunities and streamline hiring and job hunting. So long as tech companies find ways to improve aspects of people's everyday lives, the industry should continue doing its fair share to bolster overall growth.

So long as these dueling trends fight against each other, you can expect continued pullbacks in the bull market from time to time. Yet with the economy still improving -- albeit not so fast as many would like -- the general direction for stocks is likely to remain up, at least until early warning signs show up in more concrete adverse economic data.

One such warning sign that investors have worried about for years is the budget deficit. With more than $10 trillion of new debt since 2000, investors worry that a rising national debt could hurt long-term growth. But in the Motley Fool's new free report, "Everything You Need to Know About the National Debt," Fool expert Morgan Housel gives you step-by-step explanations about how the government spends your money, where it gets tax revenue from, the future of spending, and what a $16 trillion debt means for our future. Click here to read the full report!

The article The Real Reason the Dow's Taking a Breather This Morning originally appeared on Fool.com.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Chevron and LinkedIn. The Motley Fool owns shares of LinkedIn. 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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