Why the Dow's Playing a Waiting Game

Mid-week holidays are a relative rarity for the stock market, and Thursday's Independence Day holiday prompted the stock exchanges to set a 1 p.m. closing time for pre-holiday trading. After recovering from an early opening swoon, the markets appear to have taken their holiday early, as most major stock benchmarks are trading near breakeven. As of 10:55 a.m. EDT, the Dow Jones Industrials (DJINDICES: ^DJI  ) are down just 11 points, or 0.08%, while the S&P 500 is down a modest 0.32%.

Investors are facing a tug-of-war between worldwide events and strength in the U.S. economy. On one hand, recent unrest in Brazil, Turkey, and Egypt has led to growing geopolitical concerns about the stability of the world economy, especially within smaller emerging markets that have enjoyed substantial gains over the past decade. Any reversal of that growth could ripple throughout the global economy. Yet in the U.S., a favorable report on private-sector employment showing 188,000 new jobs in June lent more fuel to the optimism that domestic stocks are the best place for investors to be right now.

The big movers in the Dow today reflect that tension. Alcoa (NYSE: AA  ) , which pins its hopes on a full recovery in the global commodities markets, is down 2% to another four-year low. An analyst downgrade of the stock cited further weakness in aluminum prices and cut earnings estimates while citing few reasons to expect a quick turnaround. Given that the consensus of analysts overall still forecasts 50%-plus increases in earnings per share this year and next, cuts like this could undermine any remaining bullish sentiment on the stock.

On the other hand, Cisco Systems (NASDAQ: CSCO  ) has risen 1.4%, approaching a three-year high. The company didn't have any stock-moving news today, but Cisco has lofty ambitions to make the Internet an all-inclusive network of connectivity going beyond specialized technological devices to link up just about everything you can think of. Given better prospects for the U.S. economy, Cisco has a chance to center its efforts on the domestic market, and that could help the company answer criticism regarding its tax-motivated decisions to leave capital offshore.

Finally, as unrest rises, it's worth looking at safe-haven investments like gold. The SPDR Gold Trust (NYSEMKT: GLD  ) is up more than 1% today to about $1,250 per ounce, with some investors looking at geopolitical turmoil as a motivating factor. Once again, though, beaten-down mining stocks are outperforming bullion: The Market Vectors Gold Miners ETF (NYSEMKT: GDX  ) jumped about 1.6%. Gold experts differ in their views on whether a further drop to $1,000 per ounce or less is in the cards in the short run, but value investors appear to be licking their chops at mining stocks following a decline that far outpaced the drop in bullion prices.


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