November 26, 2012
The millions of shoppers hitting the malls on Black Friday weren't the only Americans frantically buying at the end of last week. The Dow Jones Industrial Average (INDEX: ^DJI ) closed last Friday up 172 points. Traders must have forgotten about the fiscal cliff and the European debt problems after stuffing themselves full of Thanksgiving Day turkey. Now that investors had the weekend to rethink their purchases, it seems they may be having buyer's remorse. As of 12:55 p.m. EST the index is down 0.55% to 12,938 points. Only six of the 30 Dow components are trading in the green today, and the biggest losers are the banks and the telecom industry.
So why are they down?
Bank of America (NYSE: BAC ) and JPMorgan Chase (NYSE: JPM ) are among the Dow's leading laggards, down 0.66% and 1.5%, respectively. One reason investors may be pulling out of both stocks is the announcement that Mary Schapiro, the current Chairman of the Securities and Exchange Commission, will be leaving the agency. Schapiro has been at the helm since 2009 and restructured the broken SEC after it was tainted by the near-collapse of the financial markets and a number of high-profile ponzi schemes. A change in power introduces new uncertainty to the financial institutions and their investors. Since Schapiro cleaned up the agency, the new chairman may have more time to focus on stricter regulations and oversight on the big banks.
Concerns over the fiscal cliff and new tax policies may be the reason that both of the Dow's telecommunications companies are moving lower. AT&T (NYSE: T ) and Verizon (NYSE: VZ ) are down 0.96% and 0.85%, respectively. One potential new tax policy will hold dividends at the same tax rate as earned income, not the capital-gains tax rate which in most cases would be much lower. This fear of higher taxes has driven some investors away from high-dividend, low-growth stocks. AT&T currently has a dividend yield of 5.2%, while Verizon sports a yield of 4.7% -- currently two of the highest yields an investor can find in the Dow.
High-yielding stocks typically have lower price-appreciation, but the big dividend makes up for low growth. Now that taxes may take away some of the returns dividends would provide, some investors feel they would be better off in the long run with high-growth, low-dividend stocks.
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