Why the Dow Dropped Despite Positive Greece News

Yesterday was a day some billed as one that could end much of the uncertainty surrounding Europe and worldwide markets. Instead, it just showed how widespread and complicated the economic issues have become in the eurozone. After what most investors agree was a positive result from the Greek elections with the pro-eurozone New Democracy party posting a narrow victory, The Dow Jones Industrial Average (INDEX: ^DJI  ) was decidedly neutral today; the blue-chip index dropped a fifth of one percentage point.

Index

Change

Ending Value

Dow Jones Industrial Average -25.35 [-0.20%] 12,741.82
Nasdaq 22.53 [0.78%] 2,895.33
S&P 500 (INDEX: ^IXIC  ) 1.94 [0.14%] 1,344.78

Helping dampen the mood was investors' realization that although the New Democracy party had won, its narrow margin of victory meant that it would have to form a coalition with a minority party to gain a pro-bailout majority in Parliament. While that's likely in the next day or so, the election still doesn't solve investors' continuing worries of the country's long-term fiscal stability.

And then there's another little problem; The health of the eurozone's fourth largest economy is looking increasingly dire by the day. Today, Spain's borrowing rates for 10-year bonds rose above 7%, a level that's unsustainable and near the same rate that forced Greece, Ireland, and Portugal to seek a bailout. The high bond rates are stoking concerns that Spain itself will need a bailout after the up to $125 billion bailout for the country's banks.

Blue chips
Kraft
(NYSE: KFT  ) was the Dow's biggest gainer today, rising a modest 0.88%. The company made news today by offering to exchange up to $3.6 billion in debt ahead of its upcoming spinoff. Kraft will split itself in two later this year; Kraft Foods will be a grocery-products company while a new global snacks company called Mondelez International will be created. S&P said today that Kraft's ratings and outlook would be unchanged by the debt exchange.

Hewlett-Packard (NYSE: HPQ  ) was in the unenviable position of being the Dow's biggest loser today, dropping 2.73%. The company is particularly exposed to Europe, getting more than 30% of its revenue from the continent, not a great position to be in at a time of increased uncertainty in Europe. Bank of America (NYSE: BAC  ) had the Dow's second largest fall today, dropping 1.77%. The megabank is also highly exposed to Europe and is one of the most sensitive Dow stocks to the global economy. While both these stocks fell big today, these are two stocks that couldn't be more polar opposites for the full year. Bank of America is the Dow's top performer year to date, up 40%, while HP is the worst, dropping more than 18% in 2012.

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Brendan Byrnes owns no shares of any company mentioned above. The Motley Fool owns shares of Bank of America. 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.


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  • Report this Comment On June 18, 2012, at 11:48 PM, mediamash wrote:

    I think that all private investors should get out of the market. If Greece votes favorably, and its still not enough. There is always a reason to be negative and honestly, this is not worth it anymore...

  • Report this Comment On June 19, 2012, at 12:57 AM, RKD2K wrote:

    We and the rest of Europe are just lurching along. It seems to this writer that the bog is becoming much more soft. There is quicksand ahead and what do we do?? USA is leaderless, no Captain at the wheel, if there ever was one. It looks like #10 can is the best place for one's $. However we loose on inflation. Damned if we do and damned if we don't.

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