Why the Dow's Not Bouncing Back 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.
Throughout much of the bull run in the stock market, investors could expect declines like yesterday's 225-point drop to give way to a quick bounce on subsequent days as favorable economic data or other market-moving news helps bring a more optimistic tone back into the market. Today, though, we haven't seen much evidence of that sort of response. According to preliminary August figures, consumer sentiment dropped more than five points, offseting any comfort from a nearly 6% jump in housing starts during July. As of 10:45 a.m. EDT, the Dow Jones Industrials are up just 12 points, regaining less than a tenth of their drop from yesterday and leaving the average poised for an almost 2% drop for the week.
Reflecting the dour mood was Alcoa , which fell more than 1.5% on an analyst downgrade. With the company having announced earlier this week that it will permanently close one of its potlines at a New York plant and temporarily cut production at several smelters in Brazil, it's evident that Alcoa still faces substantial pressure from weak aluminum prices and poor prospects for future demand. The moves are designed to reduce Alcoa's overall costs, making it more competitive in a lower-price environment, but what the company really needs is for industry demand to improve and support higher future prices.
Verizon is also a big decliner, dropping 1.1%. The telecom giant has been looking northward to the Canadian market as a potential avenue for further growth, but reports from earlier this week have questioned whether Verizon will move forward before securing spectrum at an upcoming auction early next year. The move seems prudent, given the outcry among Canadian competitors about alleged preferential treatment that Verizon might receive in a spectrum auction, but investors are likely frustrated at the delay in plotting at least some viable path forward for growth.
Perhaps more troubling, though, is the fact that several beaten-down stocks from yesterday failed to recover. Neither Cisco Systems nor Wal-Mart managed to gain ground even after they dropped sharply yesterday following earnings disappointments. With some economists arguing that Cisco shows the true state of the business-to-business environment and that Wal-Mart shows similar weakness among much of the U.S. consumer class, investors will be watching both companies closely to see whether their business conditions improve even as their share prices remain under pressure. Moreover, if consumer sentiment truly is worsening, then Wal-Mart could see the impact first.
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The article Why the Dow's Not Bouncing Back Today 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 Cisco Systems. 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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