Why the Dow Continues to Crash Today

After an incredible three-month run the Dow Jones Industrial Average (INDEX: ^DJI  ) has sharply reversed course. The index has put up a five-day downward spiral, erasing a large part of the year-to-date gains it fought so hard to earn. Here is a look at how the major indexes are doing right now:

Index

Gain (Loss)

Gain (Loss) Percentage

Intraday Value

Dow Jones Industrial Average

(200.2)

(1.6%)

12,729

Nasdaq

(51.1)

(1.7%)

2,996

S&P 500

(21.9)

(1.6%)

1,360

Source: Yahoo! Finance.

What's causing the commotion?
It's the economy, stupid! The market's broad slide today is anchored to disappointing news about the US economy, which disappointingly dovetails well with Friday's less-than thrilling unemployment data. While Greek debt fears seemed to have subsided from their peak only a few months ago, the Eurozone is back to haunt us. The whole region is marred with debt and weak economic prospects, and now many are looking to Spain as the next ticking time bomb.

Of course we can't heap all of our woes on Europe, high gas prices and concerns about Iran continue to cause real worries for investors. Not only that but The Fed has indicated there would be no additional quantitative easing, news that hit the 2012 Dow Starlets Bank of America (NYSE: BAC  ) and JP Morgan (NYSE: JPM  ) particularly hard.

Despite the news though they are still the top two performing Dow stocks for the year, and continue to look cheap with regard to their price to book ratio. Taking another step back, the Dow is still up more than 4% for the year which isn't a bad pace.

An inflection point?
Alcoa
(NYSE: AA  ) unofficially kicks off earnings season after the market closes today. They are the first Dow component to report, and investors are hoping they put up big numbers as a sign of better times ahead. Unfortunately, after nine quarters of earnings growth, FactSet is now projecting a decline in earnings growth. This makes sense given slowing China growth and a shaky Europe, but the silver lining is that muted expectations are easier to beat, so go get 'em Alcoa! Make us proud.

After Alcoa it's JP Morgan reporting on the 13th, and then a flood on the 17th with IBM (NYSE: IBM  ) , Intel, Johnson & Johnson, and Coca-Cola all reporting. All four are long-term conviction stocks of mine, so I'll be watching very closely to see if they signal good things to come, or a continued slowdown.

How to play it
Watching the broad market each day is exciting, gut-wrenching, and stressful, but investing doesn't have to be. If you're in the mood to pick up a great company to buy for the long term, The Motley Fool has created a brand-new free report: "The Motley Fool's Top Stock for 2012." It features a company hand-selected by the Fool's chief investment officer that has a strong future ahead of it. Get access to the report and find out the name of this legendary company. The report is free, but won't be forever, so check it out today.

Austin Smith owns shares of Coca-Cola and Intel, but no other company mentioned here. The Motley Fool owns shares of Intel. Motley Fool newsletter services have recommended buying shares of Coca-Cola, Johnson & Johnson, and Intel. Motley Fool newsletter services have also recommended creating a diagonal call position in Johnson & Johnson. 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 (5) | Recommend This Article (14)

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  • Report this Comment On April 10, 2012, at 2:50 PM, Lordrobot wrote:

    Look, you had your pretend Obama euphoria, and now reality is back in play. Obama has been horrific for business especially small business. He has destroyed coal for no reason. He has sat on oil and drilling permits for three years. No new refineries, no keystone pipeline completion. He's hideous. So how could anyone expect the bernanke drugged up economy and borrow and spend to be real?

    When gasoline goes above $4 the US economy stops cold. Retail should be up but its tanking. Sales are down. Obama wants high cost energy based on some kind of myth that solar cells will save the day. Obama has no math or science in his tiny brain; he doesn't have a clue that energy is related to all economic activity in one way or another. The economy with the cheapest energy will thrive.

    Under Bernanke, Goldman and Morgan have become the largest buyers of oil and gas futures. They have run prices up to record levels and they have done it with zero interest fed money. These are Obama's chief donors and they are doing wonderfully. So is Buffett. Buffett doesn't want Keystone, he wants to transport oil by train, his train and he wants gov to pay for the rail cars to carry the products.

    Its insane. Meanwhile, small business under the pressure of high cost commodities like oil continues to crumble.

  • Report this Comment On April 10, 2012, at 2:55 PM, TMFMorgan wrote:

    <<Retail should be up but its tanking. Sales are down>>

    Retail sales are up 3.5% from a year ago.

  • Report this Comment On April 10, 2012, at 3:20 PM, CluckChicken wrote:

    "He has sat on oil and drilling permits for three years."

    The US is producing more oil today then we did in any year since 2003. There are more active rigs today then there were at any point since the mid 80s.

    "No new refineries, no keystone pipeline completion."

    So the government has to force private businesses to build new refineries? The industry has been steadily closing refineres down since the 70s. Obviously you have missed the many articles about how the Keystone pipeline will not lower gas prices but will most likely increase prices.

    Morgan hit on retail.

    Like Obama or hate Obama at least do not make up stuff to support which side you are on.

    Oil: http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&...

    Rigs: http://www.wtrg.com/rotaryrigs.html

    Keystone: http://beta.fool.com/erinannie/2012/03/09/keystone-xl-pipeli...

    Refineries: http://205.254.135.7/dnav/pet/hist/LeafHandler.ashx?n=PET&am...

  • Report this Comment On April 10, 2012, at 3:39 PM, Myrddraal wrote:

    @TMFMorgan: You're funny. Now if you take out inflation from that number............ and adjust for our overall disposable incomes,... and then factor in debt,.... what you end up with is a bunch of people spending money they DON'T HAVE.

    Tack on top of that the fact that we, as a country, continue to import more than we export:

    http://www.bea.gov/newsreleases/international/trade/trade_an...

    And what you have is a very large ball of "We are F'D" rolling down the hill and increasing in size and speed.

    Lordrobot is closer to the mark.........

  • Report this Comment On April 10, 2012, at 5:29 PM, Wesss wrote:

    Austin,

    Tooday was a major bombshell after futures and early returns were good. So we need more than "The market's broad slide today is anchored to disappointing news about the US economy,as an explanation."

    How about one specific, at least?

Add your comment.

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