Why the Dow Is Rallying

This is one of the busiest weeks of the year for the Dow Jones Industrial Average (INDEX: ^DJI  ) , as a full third of its components release third-quarter earnings to a bevy of analysts and commentators, who are expecting the worst. As of 2:50 p.m. EDT, the blue-chip index is up a healthy 69 points, or 0.52%.

What's driving the Dow?
It's a relatively quiet day for the markets in terms of macroeconomic data. That said, two reports issued this morning seem to be fueling the Dow's rally. First, data released by the U.S. Department of Commerce showed that retail and restaurant sales rose a seasonally adjusted 1.1% in September, whereas economists had expected a 0.9% increase. Second, the Empire State index, which tracks manufacturing activity in the eponymous region, also showed improvement, rising to -6.2 from -10.4 in September (negative readings suggest contraction).

As noted above, the biggest influence on markets today is corporate earnings. Aluminum giant Alcoa (NYSE: AA  ) unofficially kicked off earnings season last week by reporting better-than-expected results after adjusting for a number of one-time charges. And this week, 12 of the Dow's 30 components will follow suit.

Among the stocks heading higher are financial companies Bank of America (NYSE: BAC  ) and JPMorgan Chase (NYSE: JPM  ) , up 2% and 1.3%, respectively, in intraday trading. Both are in the throes of earnings season. On the same day that Wells Fargo (NYSE: WFC  ) issued earnings last week, the nation's largest bank by assets, JPMorgan, blew away analysts estimates with massive bottom-line numbers. This was followed today by the nation's fourth-largest bank by assets, Citigroup (NYSE: C  ) , which similarly impressed the market with higher-than-expected adjusted earnings per share. And Bank of America, the nation's second-largest bank by assets, reports later this week.

Among the stocks heading lower today are telecommunication giants AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) . It was reported at the end of last week that Japanese mobile carrier Softbank was considering making an offer to buy 70% of America's third-largest wireless provider, Sprint. We learned this morning that the deal had been finalized. Many expect it to give Sprint a massive boost by deleveraging its balance sheet and making it more competitive with the likes of AT&T and Verizon.

Foolish bottom line
Of all the stocks that could move violently this week, Bank of America is definitely high on the list. To learn why the troubled lender's stock could double or triple in five years, click here to access our in-depth report on the company. The report comes with a full year of updates, so claim your investing edge today.

John Maxfield owns shares of Bank of America. The Motley Fool owns shares of Bank of America, Citigroup Inc, JPMorgan Chase & Co., and Wells Fargo & Company. Motley Fool newsletter services recommend Wells Fargo & Company. 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 Motley Fool has a disclosure policy.


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  • Report this Comment On October 15, 2012, at 4:07 PM, Hestheone wrote:

    Maybe there is a problem with an economy that surges when fraudulent banking and investment giants manipulate there stocks, and 'real' companies that actually produce goods and services have stock prices that fall.

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