Why Bad News Can't Hold Down the Dow

Well, it didn't close above 14,000. And while that may be disappointing for investors, the Dow Jones Industrial Average (DJINDICES: ^DJI  ) did one impressive move this morning. Dropping over 40 points shortly after opening bell, the index has already made up that decline and raised you another 5 points.

World news took center stage in the Dow's drop this morning, as both Japan and Europe released economic data showing that they are still in a recession. Japan's GDP fell for the third straight quarter, down 0.1%. The eurozone GDP fell 0.6%, higher than analysts' expected 0.4%. Greece and Portugal really added to the EU's decline, with 6% and 1.8% declines, respectively.

But don't fear, U.S. investor, there is a caped investment-crusader here to help. Warren Buffett announced this morning that Berkshire Hathaway is making a bid for the purchase of Heinz. News of Buffett's latest venture inspired more confidence in the market, bringing the Dow right back to where it started the morning. Shares of Berkshire rose 1%, while the Heinz stock price moved up almost 20% to meet the purchase-price target.

The Dow's components, on the other hand, aren't moving so dramatically this morning.

Mobile providers AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) were down slightly as they and others begin a legal battle over patent infringement. Filed by Intellectual Ventures, a patent holding company, the suit involves DSL patents that allow online access to multimedia content. Smaller providers CenturyLink (NYSE: CTL  ) and Windstream (NASDAQ: WIN  ) , which are also named in the lawsuit, took a bigger hit in the market -- down 19% and 7%, respectively.

This is not an uncommon suit for wireless providers. More than 40% of patent infringement suits filed are against telecommunication firms, up from 22% in 2007. In a separate suit, AT&T, Verizon, and CenturyLink are said to have violated seven different DSL-related patents. This suit, filed by patent-holding company Brandywine Communications Technologies, is one of 39 filed against telecommunication companies by Brandywine.

As the day moves on, we'll see whether the Berkshire news will continue to hold up the market. And though it's important to know what moves the indexes from day to day, be sure to keep the ups and downs in context. Unless the breaking news tells you that the fundamentals of your investment have changed, don't jump at every negative report or downswing.

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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  • Report this Comment On February 14, 2013, at 12:22 PM, bestwaytoriches wrote:

    Let this crash on CTL teach you dividend pumpers a lesson. CTL is one of crammer famous pump.

    I'm sure he'll tell you you stayed to long. The old saying pigs get slaughterer.

    I prefer to buy companies coming off multi yr lows based on fundamental changes to profitability. RAD $ 1.58 valuations are compelling with Price to sales .05 1/10 that of it's peers. Professional money managers predicts for 2013 RAD to triple price target $ 3.20

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