The Dow Bounces Back

Yesterday marked the second-largest points and percentage drop of 2012 for the Dow Jones Industrial Average (INDEX: ^DJI  ) . After two straight days of decline, investors might be wondering whether the market can maintain its momentum. After all, the Dow is already up more than 7% this year, matching its average annual return over the past 17 years!

Should investors be scrambling for the exits? Not so fast. Let's break down the news that's driving the Dow today, and look ahead to more important data that could boost the economy tomorrow.

Spain: The new Greece?
The Dow woke up on the wrong side of the bed this morning when weak European economic data sparked a sell-off of U.S. stock futures. Germany, in particular, released news on its industrial production that failed to impress, and Spain seems to have stolen Greece's thunder to become the hot spot of the European crisis due to rising bond yields on government debt. Nevertheless, European indexes, including the FTSE 100 (INDEX: ^FTSE  ) and the STOXX 50 (Index: ^STOXX50E) are trending toward positive territory as the trading day comes to a close across the pond.

What does this imply for the Dow and S&P 500 (INDEX: ^GSPC  ) ? While the European markets can weigh on American stocks, the more important news relates to our own economic situation. For now, it's all about unemployment data.

Jobless claims: Should we rejoice?
The most important news today revolves around the Labor Department's data on unemployment benefits, which fell by 6,000 to 357,000 total claims, the lowest level since April 2008. The sharp drop in recent months reinforces the idea that we could be experiencing a lasting, sustainable recovery. While the stock markets have seen a significant run-up in recent months, America's economic growth, as measured by GDP, has not experienced the same catalyst. However, with jobless claims dropping, all eyes will be focused on tomorrow's big news: an update on the unemployment rate. While many predict it will remain unchanged at 8.3%, a rosier outlook could cause the markets to pop when trading resumes Monday morning.

Alcoa (NYSE: AA  ) , one of the world's largest aluminum producers, could also set the tone for the market next week when it kicks off the Dow's earnings season with an announcement on April 10.

Foolish takeaway
Despite opening lower, the Dow's recovering nicely this morning, rebounding from two straight negative sessions. The news from Europe seems to be factored into a lot of economic forecasts since the region's struggles are nothing new. For investors, an update on key economic indicators is useful, but not nearly as critical as the valuations on the stocks you're interested in. If you're looking for undervalued stocks, I highly recommend starting with the three companies outlined in this report: "3 Stocks That Will Help You Retire Rich." It's our best analyst research made available free for a limited time -- download your copy now.

Isaac Pino owns no shares in any of the companies mentioned in this article. 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 (0) | Recommend This Article (11)

Comments from our Foolish Readers

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1856356, ~/Articles/ArticleHandler.aspx, 9/22/2014 12:39:13 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement