Why the Dow Hit a New Record As RadioShack Drops and CarMax Pops

Stocks finished modestly higher again today as the Fed's bullishness from earlier in the week overcame concerns about the crisis in Iraq. Though the gains were small they were enough to lift the Dow Jones Industrial Average and S&P 500 to record highs as the Dow finished up 0.15% or 26 points to close 16,947, and reached as high as 16,978 during the session nearing the 17,000 milestone. The S&P closed up 0.2% at 1,963, and the Nasdaq gained 0.2%.

As stocks continue to push further into record territory, many analysts have called for a market correction, but investor optimism seems to keep answering any sell-off as violence in Iraq spooked the market last week. Recent economic data has been strong as the labor market has made significant strides in the past few months, and the manufacturing sector has been expanding rapidly, following suit and driving cyclical stocks higher. There were no economic reports released today, but a a flurry of options expiration dates led to volume being higher than normal.  

Turning to individual stocks, CarMax were flying through the roof today, finishing up 17% on a strong earnings report. The car dealership chain beat estimates on both top and bottom lines as sales grew 13.3% to $3.75 billion, above expectations at $3.58 billion, while profits improved to $0.76 a share, easily beating the consensus at $0.67. Comparable sales increased 3.4% and the company showed strength in every key sales category with both retail and wholesale sales performing well. CarMax's unique approach of offering customers "no-haggle" pricing seems to be paying off, and the company should get a lift from the improving job market, which has helped lift car sales across the board. New store openings and share buyback program should also help boost results going forward as shares touched a 52-week high on the news.

RadioShack , meanwhile, finished down 10% today as the stock crossed the $1 threshold for the first time. The $1 point is seen as a low-water mark of viability among investors. The sell-off seemed to be prompted only by shares falling below $1 as the electronics retailers has received multiple analyst downgrades, and shares have fallen 40% since it delivered a dismal earnings report last week. RadioShack plans to close unprofitable stores, but it can only close up to 200 of them, because of agreements with creditors, or it must file for bankruptcy protection. That requirement is only further hamstringing a company facing liquidity concerns with only $61 million in the bank. CEO Joseph Magnacca has tried to sell RadioShack's comeback potential, but after a huge loss and a double-digit decline in same-store sales in its most recent quarter, it seems unlikely that the chain will survive without a bailout from a lender or declaring bankruptcy. 

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The article Why the Dow Hit a New Record As RadioShack Drops and CarMax Pops originally appeared on Fool.com.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends and owns shares of CarMax. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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