Can the Dow Regain Its Form?

The markets fell yesterday as poor macro data from the housing market cooled off January's hot start, the Federal Reserve commented on interest rates and set an inflation target, and three Dow components reported results.

But before we jump into those events, let's see how the three largest indices fared.

Index	Gain / Loss	Gain / Loss %	Ending Value
Dow Jones Industrial Average (INDEX: ^DJI  )	(22.33)	(0.18%)	12,734.63
Nasdaq	(13.03)	(0.46%)	2,805.28
S&P 500	(7.62)	(0.57%)	1,318.43

The overall trend was down for the day, and all three indices faded as the trading session wore on. The Nasdaq snapped a two-day winning streak, while the S&P 500's half-percent decline gave it the worst performance of the day.

The big story was the poor performance of December new-home sales and a reminder that the housing market is far from fixed. Sales declined in 2011 to 302,000 new-home sales, putting it roughly 6% lower than last year. In fact, it was the housing market's worst performance since 1963. It was a tough day for the residential construction sector, as Toll Brothers declined 5%.

The Fed had a busy day, with comments that it has no plans to increase the near-zero interest rate until 2014. That generally means the bank sees ongoing weakness in the economy and thinks inflation is not even on the distant horizon. Speaking of which, the Fed also noted that it's looking at an official 2% inflation target, which is a change from past behavior. As fellow Fool Sean Williams noted, this is an all-clear for investors in the mortgage REIT sector, because they "turn a profit on the difference between the rate at which they borrow (the federal funds rate) and the higher rate at which they lend." Notable mortgage REITs include Annaly Capital and its 13.8% yield, Chimera Investment, and American Capital Agency and its whopping 19.3% yield.

The Dow earnings storm continues, with Caterpillar, 3M, and AT&T all reporting. Caterpillar did its best to save the index, with a solid quarter and strong guidance pushing shares up 2.1% today. 3M also managed to be one of six Dow components to close with a gain, topping analyst estimates by adding 1.3% to shares. AT&T, on the other hand, got crushed after reporting a $6.7 billion loss, mostly because of its cancelled merger with T-Mobile.

With oil major Chevron (NYSE: CVX  ) reporting tomorrow and consumer-goods giant Procter & Gamble checking in, the Dow's earnings action will continue. It will be interesting to see whether Chevron has fallen into the same refining issues that have plagued other integrated oil majors. Analysts are expecting a 17% year-over-year improvement to $2.85 a share, but a significant 18% drop sequentially.

Stay tuned to the Fool for more analysis on recent earnings and newsworthy developments throughout the day.

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