Why the Dow Is Twisting Lower

Everybody, keep doing the twist!

Fed Chairman Ben Bernanke will be announcing as much during a 2:30 p.m. EDT press conference. Minutes from the two-day Federal Reserve policy meeting were released in advance of Bernanke's speech, detailing the Fed's $267 billion extension of Operation Twist. The plan sells short-term notes while buying long-term bonds in an attempt to increase spending now to artificially lower future borrowing costs.

In addition, the Federal Reserve plans to keep rates low through 2014. Since inflation couldn't appear further away, combined with the disastrous European Central Bank rate hike in July last year, this is sensible policy all around.

So why are markets not soaring? The Fed is essentially not making things worse by extending Operation Twist and low rates are just continuing the status quo. Investors are clamoring for new stimulus, and although the Fed reiterated it was prepared to act if the economy weakens further, today's actions won't move the economy decisively forward.

That said, let's take a closer look at how the three major indexes are faring.






Gain/Loss %


Intraday Value

Dow Jones Industrial Average (INDEX: ^DJI  )








S&P 500




Source: Yahoo! Finance.

The major U.S. indexes turned sharply sour as the press release was made available, but have since made up those losses, with the Nasdaq leading the charge. Although there was a strong chance for the market's "fear index" to reverse course from its seemingly perpetual decline, the VIX (NYSE: ^VIX  ) is down roughly 3% today and sits over 60% below its 52-week high.

On the Dow, Procter & Gamble is down over 3% after its second guidance cut in as many months, thanks to poor demand in Europe, the U.S., and China. Management is aggressively refocusing on its key products and its development pipeline, but a turnaround is likely over a year away. P&G isn't vanishing, but committed investors may only have the 3.6% dividend to comfort them over the coming quarters.

Financials would have benefited the most from additional Federal Reserve action, but Dow component JPMorgan's (NYSE: JPM  ) 3.6% gain is mostly due to the company unwinding the majority of its losing derivatives position. This comes after Congress' second "Dimon Jubilee," when JPMorgan's CEO confidently testified in front of the House of Representatives Financial Services Committee. He declared the bank should have a profitable quarter. We'll be waiting till that disclosure to find out the details of the trade, which cost the firm anywhere between $2 billion and $5 billion.

Mortgage REITS are strongly susceptible to the Fed's whims, and Annaly Capital (NYSE: NLY  ) is flat on the day while Chimera (NYSE: CIM  ) is down 5% after cutting its dividend to $0.09 this coming quarter, its second cut in a year. Given Chimera's more risky non-agency debt, investors attracted to those high mortgage REIT yields may be better served with Annaly and its 13% yield.

However, the Dow is loaded with companies with solid dividend payouts and highly sustainable business models built for the long haul. The stocks highlighted in The Motley Fool's new special FREE report, "The 3 Dow Stocks Dividend Investors Need," all have an X factor that makes them stand out from their illustrious Dow peers. Download it now, for free.

David Williamson owns shares of Annaly Capital Management and Chimera Investment, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of JPMorgan Chase and Annaly Capital Management. Motley Fool newsletter services have recommended buying shares of Procter & Gamble. 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.

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  • Report this Comment On June 20, 2012, at 4:12 PM, Lendermike wrote:

    Like the Fed really has a choice?? Our economy is not that good since we don’t have an industry driving any serious job creation. Although mortgage rates are low, people can’t borrow since lending is so tight. The average person needs better, more controlled access to credit to spur the economy.

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10/21/2016 4:47 PM
^DJI $18145.71 Down -16.64 -0.09%
CIM $15.40 Up +0.10 +0.65%
Chimera Investment CAPS Rating: ***
JPM $68.49 Up +0.23 +0.34%
JPMorgan Chase CAPS Rating: ****
NLY $10.08 Down -0.05 -0.49%
Annaly Capital Man… CAPS Rating: ****