Fed Sparks Dow Rally

He may not have the pull of Alan Greenspan during the go-go '90s tech boom, but Ben Bernanke can still move a market.

Stocks sold off briefly this morning but have since erased those losses and are trading near session highs. The Federal Reserve chairman, testifying in front of the Senate Banking Committee, reiterated that the Fed was prepared to act while moving closer to a new round of monetary stimulus. When and how that stimulus would take shape was left unsaid, making investors think the Fed is inching, not running, toward intervention.

That said, let's see how the three major indexes are faring and take a closer look at several Dow stocks making headlines.

Index

Gain/Loss

Gain/Loss %

Intraday Value

Dow Jones Industrial Average (INDEX: ^DJI  ) 87.6 0.69% 12,814.81
Nasdaq 14.8 0.51% 2,911.74
S&P 500 9.33 0.69% 1,362.97

Source: Yahoo! Finance as of 2:30 p.m.

The Nasdaq continues to show greater weakness than the Dow and S&P 500, while oil continues its mini-run, reclaiming the $90-per-barrel mark. The VIX volatility index continues to sit near 52-week lows and has declined more than 5% so far today. Currently, all but six of the Dow's components are showing gains, with Disney (NYSE: DIS  ) and its 4% rise leading the way. Disney received a bullish upgrade this morning from Bank of America. Merrill Lynch implied a 20%-plus upside for Disney on the back of improved parks performance, increased free cash flow, and continued studio success.

Earnings season is in full swing; two Dow components reported this morning. Coca-Cola (NYSE: KO  ) saw profit decline as higher costs (a reccurring theme this quarter) cut into the bottom line. However, impressive sales growth, excluding Europe, has set Coca-Cola up nicely for a strong back nine this year. Johnson & Johnson (NYSE: JNJ  ) is up half a percent thanks to its second-quarter results. Analysts expected $1.29 per share, and J&J delivered $1.30, extending its Wall Street beat to five quarters. Unfortunately, the "beat" was accompanied by a cut in full-year guidance as higher costs, supply issues, and negative currency effects disrupted sales. As I said yesterday, this isn't a stock investors should be worried about from quarter to quarter. With its 3.6% yield, strong drug pipeline, and dominant force in medical devices, Johnson & Johnson is well-positioned to benefit from both emerging-economies' newfound wealth and the aging population of the developed world.

Par Pharmaceutical (NYSE: PRX  ) is soaring 36% after agreeing to be taken private by TPG Capital. Par is welcome to seek a better deal until Aug. 24, but I doubt Par investors will do much better. The company has a small proprietary-products division, but the majority of revenue comes from the generics business, which is a low-margin proposition. Although the patent cliff will be a boon for generic-drug companies, economies of scale still rule the day in this low-margin business. Will Par add the economies of scale to make it attractive to a larger player? Call me skeptical.

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David Williamson owns shares of Johnson & Johnson and Coca-Cola, 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 Walt Disney, Johnson & Johnson, and Coca-Cola. Motley Fool newsletter services have recommended buying shares of Johnson & Johnson, Walt Disney, and Coca-Cola. Motley Fool newsletter services have also recommended creating a diagonal call position in Johnson & Johnson. The Motley Fool has a disclosure policy.
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