Can the Dow Keep Beating the Overall Stock Market?

Can the Dow Keep Beating the Overall Stock Market?

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.

For the second time this week, the Dow Jones Industrials saw gains that were substantially greater than those of the broader markets. A slate of relatively weak economic data held the broader market back: Retail sales posted only half the rise in August that economists had expected, and consumer confidence levels fell to their weakest readings in five months. Still, business inventories climbed at double the pace of economists' estimates, helping to push the Dow to a 49-point gain as of 10:50 a.m. EDT even as the S&P 500 was up just 0.1% and the Nasdaq Composite had posted a modest loss.

Tech stocks are playing a substantial role in the Dow's outperformance, as Intel and IBM were among the most influential gainers in the average. Intel has jumped 3% on positive comments from investment analyst Jefferies, which took heart from the chipmaker's planned $60 billion investment in research and development and capital expenditures over the next three years. The company is betting a lot on being able to use its competitive advantages to win in lower-priced product lines, potentially ceding higher-end business to its rivals. But if the strategy pays off, Intel could find a way forward even as the PC industry's decline continues.

For IBM, which is up 0.8%, yesterday's launch of its cloud-based IBM Digital Marketing Network is just the latest example of the tech giant's broader strategy to emphasize cloud computing and related hardware and services. The company believes that a smarter marketing network that's more compelling to end customers could help recover $83 billion in lost sales for its clients. Tapping the profit potential of such moves will define IBM's broader strategy going forward as it continues to strive for profit growth.

Buyback activity has also driven many stocks higher. Travelers announced earlier this week that it had repurchased $633 million in shares during the quarter, as the company has benefited from a lack of hurricane activity in the Atlantic so far this year. The stock is up 0.6% today as the positive sentiment from those buybacks continues to lift investors' spirits, and if the good weather lasts, Travelers could continue to see gains.

From day to day, disparities between the Dow and other market measures aren't all that unusual. In the long run, though, you can expect the Dow to perform roughly in line with broader markets.

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