How the Dow Bounced Back


After yesterday's shellacking, stocks bounced back strongly today on some bullish economic reports, and the Dow Jones Industrial Average gained 100 points, or 0.7%, to finish at 14,760. Among the reports pushing equities higher today was May durable-goods orders, which jumped 3.6% on expectations of 3%, and orders outside of transportation grew when a drop was anticipated. Also, consumer confidence levels this month jumped to 81.4, well ahead of estimates at 75.0, and housing reports topped predictions as new home sales and the Case-Shiller 20-City Index were both better than expected.

Investors were also encouraged by the easing in the Chinese credit crisis, as the People's Bank of China said it would provide cash to lending institutions as needed. The Shanghai Composite had been down 5% again at one point again last night, but it recovered on the announcement to finish nearly unchanged.

Bank of America , which was the Dow's biggest loser yesterday, today led the index, gaining back all of Monday's losses to finish up 3%. The reason for today's gains was essentially the mirror image of yesterday's losses, as B of A, heavily involved in mortgages, was encouraged by improvements in the housing market. The announcement by the People's Bank of China also favors the lender, as it will keep China's cash crunch from spreading beyond its borders. Treasury yields increased again today, however, which could threaten the housing recovery by sending mortgage rates higher.

Verizon was also a big winner today, moving up 2.7%. Last night, Verizon won the dismissal of a lawsuit last night that could have blocked an arrangement it made to shed $7.4 billion in pension obligations. In a separate item, rival Sprint Nextel approved the majority takeover by Japan's Softbank, which could bring added firepower to the nation's No. 3 wireless carrier, challenging Verizon.

Finally, UnitedHealth Group was the worst performer on the blue chips, a day after being one of the few gainers. There was no specific news out on the insurance giant, but the stock has been unusually volatile of late, as investors continue to surmise what effect Obamacare will have on UnitedHealth and the greater insurance industry. UnitedHealth has been sluggish to enter the state-based exchanges, a decision that could cause it to lose a competitive edge against the likes of Blue Cross/Blue Shield, which plans to enter nearly every exchange, as well as also causing to losing sway with the White House.

As UnitedHealth's recent swings indicate, Obamacare will undoubtedly have far-reaching effects. The Motley Fool's new free report "Everything You Need to Know About Obamacare" lets you know how your health insurance, your taxes, and your portfolio could be affected. Click here to read more.

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Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Bank of America and UnitedHealth Group and owns shares of Bank of America. 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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