Why the Dow Shrugged Off Recession Fears This Morning

Ordinarily, you'd expect news that the U.S. economy contracted during the fourth quarter to cause massive selling, as investors would fear the onset of a fall back into recession after a tepid economic recovery over the past several years. Yet the market's response to the Bureau of Economic Analysis' announcement that GDP fell at a 0.1% pace last quarter was relatively muted, with investors apparently concluding that huge cuts in government defense spending were likely anomalous and therefore not indicative of long-term weakness. More encouragingly, consumer-facing categories like residential investment and durable-goods expenditures showed strong gains. The Dow Jones Industrials (DJINDICES: ^DJI  ) has given up only modest ground, falling about 18 points as of 10:45 a.m. EST.

Within the Dow, Caterpillar (NYSE: CAT  ) showed general ambivalence to the economic readings, hanging just below the unchanged level. The drop in net income from year-ago levels that the company reported earlier this week indeed suggests economic weakness across the globe, but shareholders have taken Caterpillar's conservative guidance in stride, looking instead to the realization that eventually, rising populations in emerging markets will require the sorts of investments that will benefit the construction equipment giant.

Elsewhere, Chesapeake Energy (NYSE: CHK  ) soared more than 6% on news that controversial CEO Aubrey McClendon will leave the company on April 1. Apart from the obvious April Fool's references, investors should focus on whether McClendon will receive the tens of millions of dollars in severance benefits that his employment contract provides for in the event of a "termination without cause." Any such payout would be a parting shot at investors who have had to deal with a laundry list of provocative behavior from McClendon in recent years.

Finally, MGIC Investment (NYSE: MTG  ) recovered from a big drop near the open to rise 5.7%. The beleaguered mortgage-insurance company has struggled throughout the housing bust as high delinquency rates led to massive losses for MGIC. Yet as home prices have firmed and mortgage activity has returned to the marketplace, MGIC could well be poised for a long-awaited turnaround.

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