Why the Dow Got Hammered

For the second time in just three trading days, the Dow Jones Industrial Average (INDEX: ^DJI  ) posted its worst one-day drop since June. A slew of poor earnings reports at home and renewed concerns about Spain combined to send the blue chips down 243 points, or 1.8%, to finish at 13,103. The market's two other major indexes, the S&P 500 and Nasdaq, were down but not as sharply, losing 1.4% and 0.9%, respectively.

Before today's trading session even began, trouble was lurking from abroad as major markets in Europe all fell 1.4% or more on news that Spain's economy contracted in the third quarter by 0.4%, its fifth consecutive quarter of negative growth. Credit ratings for a number of Spanish provinces were also cut to junk. The news could push the Iberian country closer to requesting a bailout from the eurozone, a prospect that investors have cheered in the past despite its unknown consequences. Nevertheless, a continuing recession is a bad sign. Spain's leaders have insisted they don't need the economic injection, but a shrinking GDP and unemployment near 25% could leave them no choice.

Back at home, lackluster earnings from three Dow components this morning only added insult to injury. Chemical-maker DuPont (NYSE: DD  ) fell a whopping 9% after announcing that it will cut 1,500 jobs and reporting that weakness in solar-panel demand and for titanium oxide, an industrial pigment used for whitening, took a big bite out of earnings. The seed maker tallied adjusted earnings of $0.44 per share, down from $0.69 a year ago, and $0.02 short of analyst estimates. Revenue from continuing operations dropped 9% to $7.4 billion. Outside solar and titanium oxide, volumes increased by 3%, and the company maintained its 2012 EPS guidance of $3.25 to $3.30.

Fellow conglomerate 3M (NYSE: MMM  ) didn't fare much better, as its shares fell 4.1%. The maker of products such as the Post-It Note cut its 2012 guidance to a range of $6.27 to 6.35 a share from a range of $6.35 to $6.50 in response to "current economic realities." Because of negative currency translation, the company projected that revenue growth would be flat for the year. EPS of $1.65 for the quarter matched expectations, but revenue of $7.5 billion fell about 2% short.

Compared with the other two Dow stocks reporting, United Technologies (NYSE: UTX  ) looked like a star, as shares were off only 1% by the end of the day. The maker of Otis elevators and other industrial equipment said earnings dropped by 3% on currency weakness to $1.37 a share, but additional profits from its recent acquisition of aerospace supplier Goodrich helped it beat estimates by $0.18. Revenue, on the other hand, climbed 5.7% higher to $15 billion, but that was still short of expectations of $15.5 billion. United also said it expected to hit the low end of its previous sales forecast of $58 billion to $59 billion and left earnings guidance unchanged at $5.25 to $5.35.

On days like this, a dividend looks like an investor's best friend. Even when the market tanks, you can still count on getting those quarterly checks in the mail, and lower share prices mean you get a better yield and can reinvest those payout more cheaply. To help steer you in the right direction, the Fool has prepared a special free report with our dividend picks in the Dow. These aren't necessarily the biggest yields, but these companies all have the product breath and international penetration to keep growing and delivering market-beating returns to shareholders for decades to come. To get your free copy of this report, "3 Dow Stocks That Dividend Investors Need," just click right here now.

Jeremy Bowman and The Motley Fool have no positions in the stocks mentioned above. Motley Fool newsletter services recommend 3M. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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