Dow Flags Despite Signs of Economic Strength
Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
Investors are ready to leave August behind and start a new month in the black -- but unfortunately, the Dow Jones Industrial Average has other plans. After starting the day with a triple-digit gain, the Dow has dropped to an 11-point loss as of 2:35 p.m. EDT as positive economic news is overshadowed by massive corporate mergers and acquisitions. Here are the details.
More signs of economic strength
The Institute for Supply Management announced this morning that its purchasing managers' index increased to 55.7 in August from July's reading of 55.4. Any result higher than 50 indicates expansion, and the result was much higher than the expected figure of 53.8. In other news, overall construction spending increased by 0.6% in July to a seasonally adjusted rate of $900.82 billion -- the best reading since July 2009, according to Morningstar.
Movers and shakers
Microsoft is easily the biggest loser in the Dow today, down more than 5%. Investors weren't thrilled with the company's decision to buy Nokia's mobile-handset business for more than $7 billion. While the market didn't like the agreement, I think it makes strategic sense for Microsoft and will help the company get ahead as it shifts its focus to devices and services. If Microsoft can integrate the business and cut costs, the acquisition will help the company build its smartphone presence. While Microsoft's stock price has taken a dive, Nokia's has responded by jumping 30.8%.
The second-biggest loser in the Dow today is Verizon Communications , currently trading 2.7% lower. The pullback owed to its recent announcement that it will spend $130 billion in cash and stock to acquire the remaining 45% stake in Verizon Wireless from Vodafone Group. While the move makes some strategic sense for Verizon, the price tag may be a little high for investors to like. Some analysts have speculated that Verizon's stock price is overvalued, and that could be one reason management was willing to pay the full price asked by Vodafone. Verizon will use 1.3 billion of its supposedly overvalued shares, worth roughly $60 billion, to pay for nearly half of the acquisition, according to Morningstar.
Outside the Dow, the popularity of the NFL helped CBS and Time Warner reach a settlement after a dispute caused CBS' content to recently be blacked out on Time Warner's cable services. The two companies had been in a month-long dispute, but they finally reached an agreement a few days before the highly rated NFL kicks off, sending CBS shares up 4% today.
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