Why's the Dow Plunging This Time?

If you'd hoped that Monday's bounce for the stock market marked a break from big declines for a while, this morning's big drop comes as a big disappointment. The saga of Greece's possible exit from the eurozone is rapidly reaching Homeric-epic length, while closer to home, a weak earnings report from Dell also highlighted the fragility among many stocks right now. At around 10:45 a.m. EDT, the Dow Jones Industrial Average (INDEX: ^DJI  ) was down more than 170 points, pulling the Nasdaq and S&P 500 down sharply with it. All 30 Dow components traded lower.

Dell's not in the Dow, but many of the tech stocks in the average were among its worst performers in morning trading. Hewlett-Packard (NYSE: HPQ  ) fell almost 5% in advance of its own earnings report. Given HP's heavy presence in the PC business, investors likely believe that Dell's weak results and pessimistic forecast concerning IT spending bode ill for HP as well.

Meanwhile, Microsoft (Nasdaq: MSFT  ) and Intel (Nasdaq: INTC  ) were both down more than 3%. Despite attempts to broaden its reach into alternatives like mobile chips, Intel still relies heavily on its core PC chip business. When Intel-users like Dell and HP see drops in hardware sales, Intel suffers direct consequences as well. Meanwhile, Microsoft's software may seem one step removed from PC sales, but given that nearly all computer buyers stick with whatever operating system comes pre-installed on their computers, Microsoft needs good PC sales in order to support its own revenue. Although Microsoft is counting on its Windows 8 release later this year to boost sales, it still needs healthy PC demand to provide a platform for the operating system.

American Express was also down sharply, falling more than 2% despite yesterday's news that Zynga (Nasdaq: ZNGA  ) had reached an agreement with the card company to issue a prepaid card usable to redeem virtual game credits. The move is an interesting one, but with social media stocks under heavy pressure right now, it's hard to be optimistic about how much of a positive impact this would have for AmEx.

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Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool owns shares of Intel and Microsoft. Motley Fool newsletter services have recommended buying shares of Intel, Dell, and Microsoft, as well as writing a covered strangle position on American Express and creating a bull call spread position on Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


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  • Report this Comment On May 23, 2012, at 11:26 AM, JabaRumba wrote:

    Why so focused on Dell and HP? Lenovo announced earning today which are far more relevant to INTC.

  • Report this Comment On May 23, 2012, at 11:53 AM, WineHouse wrote:

    I like stable dividend-growth stocks. Even though my portfolio's "market value" has dropped markedly compared to a month ago, the fact is that the annualized income generated by my portfolio has actually gone up a wee bit over the past month, thanks to several companies that declared increases in their dividend payouts.

    I'm retired but expect to live another 30 yrs (please), so steadily increasing income that grows with inflation is the only thing that's important to me. I don't want to have to spend down my capital to pay for my living expenses. I don't really care whether the market value of my portfolio goes up or down or stays flat, so long as the income that it generates keeps going up enough to keep up with inflation.

  • Report this Comment On May 23, 2012, at 12:39 PM, drborst wrote:

    Your focus on HPQ, MSFT amd INTC is interesting. Don't many mutual funds advertise that they hold fixed percentages in different sectors, like tech stocks? If they were buying the new FB offfering, they'd probably have to sell something else tech to keep the percentage fixed, and large liquid tech companies like HPQ, MSFT and INTC would be the obvious choices.

    Somebody smarter than I would have shorted them yesterday, and looking at the number of shares shorted on Yahoo compared to last month, at least a few people did. (or am I reading that wrong?)

    DRB

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