Why the Dow Is Eu(ro)phoric This Morning

Sometimes, surprises are good things. Today, the U.S. stock market got a gift from Europe, where leaders agreed to allow the use of bailout funds for direct recapitalizations of banks -- similar to what the TARP bailout program did four years ago. The euro soared against the dollar, stock markets in Europe moved sharply higher, and just before 10:45 a.m. EDT, the Dow Jones Industrials (INDEX: ^DJI  ) were up 214 points to 12,817, recovering almost all of the ground they lost in the past week and a half. All 30 Dow stocks were up on the day.

Predictably, Bank of America (NYSE: BAC  ) led the Dow higher, rising by almost 4%. The bank arguably has the most to gain from a healthy Europe and the most to lose if things go badly there. Despite U.S. banks having reduced their direct exposure to Europe, a more stable European banking system can only be good news for B of A and all of its stateside financial peers.

But strength showed up in other parts of the Dow as well. United Technologies (NYSE: UTX  ) rose more than 3%, as Japan agreed to buy four Lockheed Martin (NYSE: LMT  ) F-35 fighters, for which United Tech makes the aircraft engines. The move reversed the stock's losses yesterday, which came after United Tech's guilty plea in connection with criminal charges for improperly sending sensitive technology to China. If Japan's decision marks just the beginning of a longer-term commitment, which the deal allows for, then it could signal a revival for Lockheed, United Tech, and their defense peers more broadly. Boeing also rose more than 3% in apparent sympathy.

Lagging behind was McDonald's (NYSE: MCD  ) , which rose only about a quarter-percent. Despite today's challenges, though, Fool analyst Morgan Housel points to the fast-food giant as a perfect example of how simple concepts often produce the biggest long-term profits for a portfolio. The key, though, is valuation, and at more than 16 times trailing earnings, McDonald's needs global growth to not slow down as much as some now project it will.

Don't lose your cool!
Gains like today's are nice for shareholders, but you still have to think about what to do for the long haul. Stick with the stocks that are best-positioned to profit for years to come, and you'll often find big success. If you like Dow stocks for your portfolio, you have to read the Fool's latest special report, where you'll find revealed three Dow stocks with dividend strength and growth potential. The report is absolutely free, so get your copy today.

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 McDonald's, Bank of America, and Lockheed Martin. Motley Fool newsletter services have recommended buying shares of McDonald's. 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 June 29, 2012, at 10:43 PM, xetn wrote:

    So, everyone believes that stealing from the taxpayers to give to banks is ok? Wow, what a concept! I wish I was a banker. I could get governments to transfer their citizen's money to me even though I have made irrational transactions that brought huge losses. Heads, I win; tails, I win.

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Related Tickers

10/21/2016 4:47 PM
^DJI $18145.71 Down -16.64 -0.09%
BAC $16.67 Up +0.11 +0.66%
Bank of America CAPS Rating: ****
LMT $230.52 Down -1.31 -0.57%
Lockheed Martin CAPS Rating: ****
MCD $113.93 Up +3.36 +3.04%
McDonald's CAPS Rating: ***
UTX $98.67 Down -0.62 -0.62%
United Technologie… CAPS Rating: ****