Why You Should Care That the Dow Fell 135 Points Today
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.
After closing out their best year since 1997, stocks kicked off 2014 inauspiciously today, as the Dow Jones Industrial Average fell 135 points, or 0.8%, today. There was no macroeconomic reason for today's drop, though some analysts believed the slide was simply reflective of investors who had been wanting to sell their stocks, but chose to wait for the new year to delay paying capital gains tax.
While the first trading day of the year is probably not the best barometer for the year to come, it's worth remembering that stocks got off to a roaring start in 2013 as the Dow jumped 300 points last January 2 on a resolution to the fiscal cliff standoff, a forerunner for a year that saw the S&P 500 gain nearly 30%. Similarly, the last time stocks fell on the first trading day was 2008, the market's last down year, and one that saw it crash after the financial crisis unraveled the economy. Notably, stocks fell 5.3% in the first five-day trading period that year, and the market's direction over the first five days of the year has been a strong predictor of movements for the 12 months that follow.
In fact, the last 40 times the S&P 500 has made gains over the first five days of the year, 85% of the time the market has finished up for that year. In actuality, little has changed between Tuesday and today, but psychologically, things are much different. We measure time by years, after all, and a new year brings a wave of resolutions from Americans in self-improvement areas ranging from physical fitness, to personal education, to money management. Many in the market, including professional money managers and retail investors, believe that stocks are overvalued and, according to many conventional metrics, they are. For those investors, now is the most logical time to pull money out of the market and shift to other asset classes.
Turning to individual stocks, it was a quiet day for most big names, but Apple shares fell 1.4% as the iPhone maker got downgraded by Wells Fargo to neutral on margin concerns over its upcoming iPhone 6. Analyst Maynard Um said that near-term sales of iPads and iPhones should be strong, but he believes that growth is already reflected in the stock price. He also said that the iPhone 6 rollout, expected in September, could put further pressure on margins, which have already fallen as Apple has been forced to lower its prices to compete with ever-increasing competition from Android peddlers such as Samsung.
While the financial details are clearly an important part of any assessment on Apple's prospects, I'm more concerned about the direction the company has taken under Tim Cook. It no longer seems like a company focused on creating breakthrough products, and instead appears to be harvesting its current product line and doing financial backflips through vehicles such as debt issuances and share buybacks to squeeze further value out of its cash hoard. Without another breakout product, however, it's hard to see Apple again reaching the glory days that once sent its share price over $700.
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The article Why You Should Care That the Dow Fell 135 Points Today originally appeared on Fool.com.
Fool contributor Jeremy Bowman owns shares of Apple. The Motley Fool recommends Apple and Wells Fargo. The Motley Fool owns shares of Apple and Wells Fargo. 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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