Why Fed Second-Guessing Is Hurting the Dow
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.
The stock market's moves this week show the dangers of reacting emotionally with your investments. On Wednesday, investors had the knee-jerk reaction of sending stocks sharply higher when the Federal Reserve decided not to pare back its bond-buying activity yet. But once they had time to think about it, investors realized that they'll still eventually have to face the music. St. Louis Fed President James Bullard reiterated that point today, noting that tapering could come as early as next month. The result was continued uncertainty about the market's future after its rally earlier in the week. The Dow Jones Industrial Average is down a modest 23 points as of 10:55 a.m. EDT.
One unusual item Dow followers need to track today is what impact the coming changes to the average's lineup will have on exiting stocks. Shareholders in outgoing Alcoa , Bank of America , and Hewlett-Packard can all expect to see substantial volatility near the end of the session, as the Dow switch takes effect as of tonight's close.
Still, in evaluating these stocks, you still need to pay attention to their longer-term prospects. Alcoa is falling 1.1%, with at least some of those losses coming on comments from an executive at industry rival Rusal that at current low prices, 40% of the global output of aluminum in unsustainable. Meanwhile, B of A shares have dropped 0.6% despite getting a vote of confidence from Warren Buffett, who said he planned to hold on to warrants in the bank until close to their 2021 expiration date. HP has actually risen on the day, climbing 1% as short-term traders focus on its turnaround potential, rather than the weakness in the legacy PC industry.
Finally, keep an eye on news that has implications on broader corporate policy throughout the economy. Home Depot has gotten attention today for its decision to move its part-time employees to public exchanges in order to get them health insurance coverage, affecting 20,000 workers. The move ignites debate about whether Obamacare will succeed, but each individual company will have to make key decisions about how to change the benefits they offer in light of the legislation taking effect.
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The article Why Fed Second-Guessing Is Hurting the Dow originally appeared on Fool.com.Fool contributor Dan Caplinger owns warrants on Bank of America. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Bank of America and Home Depot. The Motley Fool owns shares of Bank of America. 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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