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Why the Dow Is Plunging

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Whoosh. Markets are caught in a downdraft this morning after the Federal Reserve said to banks craving another taste of quantitative easing: "No soup for you!" Policymakers apparently believe the economy has reached an escape velocity from the liquidity trap. However, today's lackluster jobs report calls that logic into question. According to ADP, the U.S. added 209,000 jobs, which came in 8,000 under expectations and a whopping 21,000 fewer than last month. The official government numbers come out on Friday, but because of the holiday weekend, the market won't be able to digest the new info until Monday.

With that in mind, let's take a closer look at how the major indexes are faring so far today and drill down on a few stocks making moves.



Gain/Loss %

Ending Value

Dow Jones Industrial Average (INDEX: ^DJI  ) (166.35) (1.26%) 13,033.20
Nasdaq (52.65) (1.69%) 3,060.92
S&P 500 (17.20) (1.22%) 1,396.18

Source: Yahoo! Finance.

The lack of additional stimulus has hit commodities and bank stocks like a ton of bricks. Dow components Bank of America (NYSE: BAC  ) and JPMorgan Chase (NYSE: JPM  ) both declined nearly 3% in early trading and the Direxion Daily Financial Bull 3X (NYSE: FAS  ) ultra-long ETF plunged 5.5% as its leverage works against investors. Easy money has fueled the banking resurgence from what could have been an industry death spiral just a few years ago. Gold, oil, and the rest of the commodities were down as the U.S. dollar gained strength. Unsurprisingly, companies whose bottom line depends on high commodity prices are down, including aluminum heavyweight Alcoa (NYSE: AA  ) , with shares off 2.5%. As the first Dow component to report earnings, Alcoa gets a big spotlight, but investors will want to dig into management's guidance on April 10 for firsthand insight into the global recovery.

Investors should remember a return to normal policies was inevitable, and if the recovery falters, the Fed would likely intervene. In the meantime, financials will have to work a little harder to generate their return, and in commodities, companies with low extraction costs generally give the largest margin of safety.

A better approach
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David Williamson holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Bank of America and JPMorgan Chase. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (3) | Recommend This Article (13)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 04, 2012, at 12:22 PM, nickjob wrote:

    Don't invest in JPM until Jamie Dimon decides not to be a thief and gives back MF Global customers their money.

  • Report this Comment On April 04, 2012, at 4:20 PM, polenium wrote:

    I listened to the 'free report'. Save your time. It's a frustrating, information poor bit of self promotion. Very unFoolish.

  • Report this Comment On April 05, 2012, at 2:35 PM, mountain8 wrote:

    oh gee. Business off the public dole and down they go. Can't they operate on their own? I'm voting out every board member at every company I own stock in. Anybody care to join me?

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Today's Market

updated 1 day ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

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Related Tickers

10/21/2016 4:47 PM
^DJI $18145.71 Down -16.64 -0.09%
AA $26.88 Up +0.19 +0.71%
Alcoa CAPS Rating: ***
BAC $16.67 Up +0.11 +0.66%
Bank of America CAPS Rating: ****
JPM $68.49 Up +0.23 +0.34%
JPMorgan Chase CAPS Rating: ****