Threats to Company Earnings Cause the Dow to Drop

While it may still be too early to tell, predictions that the markets would collapse after last night's State of the Union address seem to be dead wrong. For the most part, investors are taking those comments made by the President that would directly affect the markets in stride. As of 12:50 p.m. EST. the Dow Jones Industrial Average (DJINDICES: ^DJI  ) is down 40 points, or 0.37%. The other major indexes are relatively flat, with the S&P 500 (SNPINDEX: ^GSPC  ) up less than a point and the NASDAQ up 0.2%.

So who's down and why?
Last night, in his State of the Union address, President Obama called for the minimum wage throughout the U.S. to be increased. If this were to happen, the fast-food industry, which employs masses of minimum-wage workers, would take a big. The industry is already dealing with higher food costs, so an increase in labor could really hurt margins and overall profits. Shares of McDonald's (NYSE: MCD  ) are down 1.3% on the news.

This morning the Center for Science in the Public Interest filed a 54-page petition with the Food and Drug Administration as part of a campaign to lower the obesity rate in America. The group is asking the government to regulate the amount of sugar in different foods and drinks -- particularly soft drinks. The group claims that if the amount of sugar in these beverages were reduced, it would be a great step forward in fighting the nation's weight problem and other costly illnesses such as diabetes and heart disease. Shares of Coca-Cola (NYSE: KO  ) are down 1% today.

The earnings estimate cut came from Merck (NYSE: MRK  ) . The company announced this morning that it is reducing its earning per share estimate for the first quarter by $0.05 because of a devaluation of Venezuela's currency. The company has now forecast an earnings range of $0.76 to $0.78 per share, while analysts had previously expected $0.86 per share. Companies often take hits on profits because of currency exchange rates, so while this seems like a large projected loss, investors should not panic at this time. 

More Foolish insight
Are you at ease...or nervous? It's been a great five-year run for investors, with the Dow and S&P at or near all-time highs. Yet fears abound. When will the next downturn hit? Will political gridlock lead to portfolio-killing inflation? To learn how to protect your portfolio, click here for free guidance from the Motley Fool Pro Academy!


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