Dow and S&P 500 Drop While Twitter Soars on Debut
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 hitting record highs yesterday, the Dow Jones Industrial Average and S&P 500 are down after U.S. economic growth came in higher than expected. Better economic results are seen as bad for the market, as the Federal Reserve is then more likely to taper its $85 billion monthly asset purchases. Not everything is down: Twitter surged up as much as 92% on its first day of trading before coming down slightly. As of 2 p.m. EST, Twitter is up 80.5% to $46.94, while the Dow is down 107 points, or 0.68%, and the S&P 500 has lost 18 points, or 1.01%.
Many market observers were worried about a repeat of the Facebook IPO debacle, when technology problems on NASDAQ screwed up trading throughout the day. The Facebook fiasco was one of the reasons Twitter chose to go public on the New York Stock Exchange instead of the NASDAQ, which is the normal venue for tech stocks. The NYSE repeatedly tested its systems to ensure they wouldn't break. There have been no problems this morning, and Twitter remains up 75%.
Separately, there was a market failure today, but most people won't notice it. The over-the-counter (OTC) market has been halted by FINRA "due to a lack of current price transparency information" -- i.e., technical problems. With today's Twitter IPO, perhaps there was an error from the infamous Tweeter mix-up.
While the Twitter IPO has gone off without a hitch so far, at 75 times revenue, I will be passing on this one. You can get Facebook for 17 times revenue, and even that's too rich for my blood.
The U.S. Economy
There were two U.S. economic releases today.
Weekly new unemployment claims
Oct. 27 to Nov. 2
GDP (advance estimate)
The one to pay attention to is the advance estimate of third-quarter gross domestic product. GDP rose at a 2.8% annual rate in the third quarter, beating the second quarter's 2.5% and economist expectations of a drop to 2%.
The Dow and S&P 500 sold off on the news, as the stronger-than-expected growth means the Federal Reserve is more likely to taper its asset purchases. The Federal Reserve has been buying $85 billion of long-term assets each month -- $40 billion in agency mortgage-backed securities and $45 billion of long-term Treasuries. While asset purchases may be tapered in the next six months, the Federal Reserve is likely to keep interest rates at rock bottom for quite some time. The markets expect the Fed to hold rates low until late next year or 2015, but new studies from members of the Fed suggest that low rates could stay until 2017.
Don't Let Fear Keep You Out of the Market
Millions of Americans have waited on the sidelines since the market meltdown in 2008 and 2009, too scared to invest and put their money at further risk. Yet those who've stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.
The article Dow and S&P 500 Drop While Twitter Soars on Debut originally appeared on Fool.com.Dan Dzombak can be found on Twitter @DanDzombak or on his Facebook page, DanDzombak. He has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. 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.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.