The Biggest Losers on the Dow This Week

Happy New Year, folks. After a relatively quiet end to 2011, investors rang in 2012's first week of trading not with a bang, but rather with some respectable gains in the broad indexes. The Dow Jones Industrial Average (INDEX: ^DJI  ) rose 1.2% for the week, while the broader market Russell 3000 index climbed 1.6%.

This week saw some key macro storylines both improve and remain worrisome. On the plus side, U.S. payroll numbers came out better than expected, increasing by 200,000 at a time when the consensus expectation called for growth of only 150,000 and pushing unemployment in the States to its lowest level in three years. The rate dropped to 8.5%, down from 8.7%.

In other news, Europe remained embroiled its debt-driven fiasco. Interest rates on Italian bonds rose again above the crisis level of 7%, prompting the European Central Bank to begin purchasing Italian debt in the open market. Market observers maintain that interest rates of 7% or higher are largely unsustainable and could lead to more serious trouble if not dealt with in due course.

The back of the pack
If we define a clear loser as a stock that dropped by 2% or more, the Dow had only one for the week: Verizon Communications (NYSE: VZ  ) , which fell 4.5%. The telecom titan announced this week that it sold around 4.2 million iPhones in the last quarter. Sounds great, right? Not so fast. The heavy discounting required to attract consumers to buy the coveted Apple (Nasdaq: AAPL  ) devices through Verizon will probably drive down Verizon's margins as well for the period. Apple sells the iPhone for between $500 and $600, and wireless carriers such as Verizon and AT&T (NYSE: T  ) -- which also declined 1.9% for the week -- eat as much as $400 of that initial cost to get consumers to sign long-term plans with them.

Rounding out the week's three biggest losers was beverage stalwart and Buffett darling Coca-Cola (NYSE: KO  ) . The soft-drink provider fell 1.5%, largely driven by news that it's scaling back on its joint venture with Nestle SA. Instead, Coke plans to focus increasingly on producing ready-to-drink teas in Europe and Canada. Sales through the joint venture's Nestea product have lagged those of the competitor-driven JV between PepsiCo and Unilever that distributes drinks under the Lipton brand in the United States.

Although investors always need to remain vigilant and informed about the storylines driving their favorite stocks, panicking about a one-week drop can also turn counterproductive, and quick. Here at the Fool, we're all about investing for the long term, which can certainly involve enduring the short-term ups and downs. If you're looking for another stock The Motley Fool thinks has all the makings of a long-term winner, check out our special free report: "The Motley Fool's Top Stock For 2012." It's totally free to our readers, and the stock is hand-picked by TMF's chief investment officer. This pick won't be around forever, so access your free report today.

Andrew Tonner owns none of the stocks mentioned here. The Motley Fool owns shares of Apple and PepsiCo. Motley Fool newsletter services have recommended buying shares of PepsiCo, Unilever, and Apple, creating a bull call spread position in Apple, and creating a diagonal call position in PepsiCo. 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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  • Report this Comment On January 09, 2012, at 12:38 AM, garifolle wrote:

    Many of these losers were defensive stocks, so it might be a good sign if they go down it might mean that investors are turning to other stocks that were hardly hit by the crisis.

    But in the moment I really do not know if there is a real bullish trend in the market.

    I mean if this trend will hold on after January, supposedly the best month of the year for the indices.

  • Report this Comment On January 11, 2012, at 6:54 PM, MHedgeFundTrader wrote:

    There is no doubt that the recent jobs data has been absolutely blistering. On January 4, weekly jobless claims plunged by 15,000 to 372,000, well below the 400,000 that is required for a sustainable recovery. The next day, the ADP report delivered a gob smacking 325,000 in job gains for December. Then the big kahuna surprised to the upside, the December non-farm payroll, reporting 200,000 new jobs, taking the unemployment rate to a three year low at 8.5%.

    Are happy days here again? Is it off to the races? More importantly, should we be adding risk positions here in expectation of a continued economic miracle?

    I think not. You all know well that I am a history buff. But I know enough about history to understand that it can be a dangerous thing. Don’t let these numbers lull you into a false sense of security. Any slavish reliance on the past can cause you to become history, if you’re not careful.

    There is no doubt that a seasonal surge in hiring caused by the holidays has created this spike. Normally, governments and agencies smooth these figures through a seasonal adjustment process. The problem arises when the structure of the economy is changing faster than can be reflected in these seasonal adjustments, as it is now.

    A large part of our economy is moving online more rapidly than most people realize. According to comScore, a marketing data research firm, online sales leapt by 15% to $35.3 billion during the November-December holiday period, an all-time high. I speak from a position of authority here as I happen to run one of the most successful financial sites on the Internet, which I kicked off four years ago with a $500 investment.

    Much of this migration is being captured by Fedex and UPS, the nexus at which Internet commerce meets the real world. After all, virtual products require a real world delivery. This explains why the couriers are seeing a booming business in an otherwise flat economy. Fedex hired 10,000 temporary workers to deal with the Christmas surge in 2011, a gain of 18% over the same period last year. UPS added a stunning 55,000, a 10% increase.

    Watch for the other shoe to drop. That will become apparent when that the newly hired become the newly fired, leading to a sudden and rapid deterioration of the jobs data. This could be the information the stock market and other risk assets need to put in a top for the year. The scary part is that this may happen sooner than you think.

    The Mad Hedge Fund Trader

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