Will the Dow's Gains Suddenly Vanish?

Markets surged again today despite a second straight day of weak economic data -- specifically, worse-than-expected factory and consumer confidence numbers. Before we answer why the market is contradictorily soaring, let's take a closer look at how the three major indexes are fared and at a couple of stocks making headlines.

Index

Gain / Loss

Gain / Loss %

Ending Value

Dow Jones Industrial Average (INDEX: ^DJI  ) 115.26 0.91% 12,767.17
Nasdaq (INDEX: ^IXIC  ) 36.47 1.29% 2,872.80
S&P 500 (INDEX: ^GSPC  ) 13.74 1.03% 1,342.84

Source: Yahoo! Finance.

We saw strong performances across the board as both the Nasdaq and S&P 500 both gained more than  1%, while the Dow's lagging performance is due to the technology's 0.5% gain lagging all other sectors. Finally, the markets' "fear index," the VIX (INDEX: ^VIX  ) , declined another 2% on top of yesterday's 10% plunge, its largest move of the month, in what could be the calm before the storm. Finally, technology and energy were the strongest two sectors, showing respective gains of 1.9% and 1.3 %. Of particular note was ATP Oil & Gas (NYSE: ATPG  ) , which surged 30% on news that that the company was suing the U.S. government for $68 million in regard to the gulf moratorium following the Macondo spill. The jump in share price was well in excess of the full award, so this could be a case of investors piling in to high-beta stocks before the Greek elections.

The elephant in the room remains Sunday's critical Greek elections. If the far-left Syriza wins, it could spell trouble for the eurozone. That party's leaders insist they wish to remain on the euro, but they want to rip up the current austerity deal.

Amid all this potential chaos and negative news, why are markets up? Bad news for the economy is good news for investors if the Federal Reserve is forced to undertake another round of quantitative easing. Furthermore, it's rumored that central banks are preparing to prop up the markets should the new Greek government spook investors.

So will the Dow's recent gains suddenly vanish next week? Quite easily, if rumors of central bank intervention turn out to be just that or if the Fed continues flirting with monetary intervention instead of committing to it. While smart investors are greedy when others are fearful, jumping headfirst into this rally could burn short-term investors.

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David Williamson owns shares of ATP Oil & Gas, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool has a disclosure policy. We Fools don't 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 (17)

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  • Report this Comment On June 15, 2012, at 8:26 PM, Stimulusnow wrote:

    I would think that investors would be more encouraged if austerity measures were relaxed in favor of policies to promote growth, because austerity ain't workin'.

  • Report this Comment On June 15, 2012, at 9:55 PM, awallejr wrote:

    Well with regards to ATPG I doubt highly that a probably groundless lawsuit was the cause. I suspect it might have more to do with a short squeeze on options triple witching hour after the stock had crashed to ridiculously low levels.

    Personally, though it pains me to say it, I think Cramer's perspective might be right, namely it is a win/win no matter what happens. If Greece fights to stay in the Euro that would be a market positive, and if Greece chooses to re-neg, that would be a market positive since all the other countries have stated how they would flood the market with liquidity.

  • Report this Comment On June 15, 2012, at 11:33 PM, Jonaze wrote:

    Why has the Dow gone up 670 points since June 4 low and the ASX 200 up just 71 points. Why is the Dow now 43% in front of us since Oct 09. Why did we go down the same percentage in the GFC and then up the same percentage for the first 6 months after the GFC. Why then for the next 6 months Oct 09 till April 10 did we lose 19% to the Dow when the Aussie $$ was 93c. Why has our market gone backwards for three years when the ASX 200 is predominantly made up of 6 stocks, 4 Banks that have made record profits over the past 6 reporting sessions and RIO and BHP that have more money and assests now than they have ever had. What is going on. Why is our market sitting at a level of 4 months out from the GFC. Why were we 2600 points in front of the NZ market in Nov 07 and are now just 500 points in front . Why were we the same as the Ftse in Nov 07 and now 1400 points behind. On Oct 15th 2009 Dow 10020 us 4859 now Dow 12767 us 4054. Whats going on.

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