Why Scared Investors Are Sinking the Dow 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.
This article features Cisco Systems, Boeing, and Nike. Fool contributor Dan Caplinger has no position in Cisco Systems, Boeing, or Nike. The Motley Fool recommends Cisco Systems and Nike. The Motley Fool owns shares of Nike.
In a long-running bull market, it often takes time for investors to lose their optimism and start thinking more negatively about future prospects. Yet that shift appears to have taken place over the past couple of weeks, as market participants have increasingly focused on news that points toward a potential end to the bull market. Today's readings on consumer confidence, which hit its lowest level in five months, only exacerbated the general gloom over the federal government's failure to make substantial progress on a spending bill. With an Oct. 1 deadline to avoid a government shutdown, short-term traders moved to the exits before the weekend, and by 10:50 a.m. EDT the Dow Jones Industrials were down about 75 points.
Looking at individual Dow stocks, you can see some signs of specific worries about a potential shutdown. Cisco Systems fell 2.4%. The major provider of networking technology has historically gotten a substantial part of its business from government entities. A short-term shutdown wouldn't necessarily hurt Cisco's government prospects, but investors have to fear that a resolution to the budget impasse could include further spending cuts that would have an impact on sales. Add in the uncertainties that CEO John Chambers discussed earlier in the week, and Cisco has shareholders worried about the sustainability of its recent gains. Moreover, broader weakness in other tech stocks shows that other concerns beyond the government are hurting Cisco.
Still, most Dow companies have worked hard to avoid becoming too reliant on the government. Boeing fell almost 1%, and in years past, the aerospace giant might have plunged much more dramatically on any threat to its defense-industry funding. Yet years of concerns about budget cuts led Boeing to emphasize growth in the commercial-aerospace sector, and prospects there remain solid enough that it would take further weakness in the global economy overall to slow down the massive opportunities that Boeing sees for aircraft sales in the decades ahead.
Finally, long-term investors should keep in mind that the focus of the market will soon shift to earnings. Nike started the season on the right foot, with its stock soaring 5.5% after the company announced a 33% jump in earnings per share based on 8% higher overall sales. With broad-based success among its various segments and continued strength in its key North American market, Nike made a positive impression in its first report as a member of the Dow. If more companies report positive results in the weeks to come, it could support another run-up to new highs for the Dow.
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Given today's losses in stalwarts like Cisco and Boeing, investors and pundits alike are skeptical about future growth. They shouldn't be. Many global regions are still stuck in neutral, and their resurgence could result in windfall profits for select companies. A recent Motley Fool report, "3 Strong Buys for a Global Economic Recovery," outlines three companies that could take off when the global economy gains steam. Click here to read the full report!
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