Coke Stock Is Dragging Down the Dow

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) is down 0.4% to 15,423 points as of 1:15 p.m. EDT following some mixed reports on the economy and a disappointing quarterly report by Coca-Cola (NYSE: KO  ) . The S&P 500 (SNPINDEX: ^GSPC  ) is down 0.6% to 1,672.

There were three U.S. economic releases today.

Report

Period

Result

Previous

Consumer Price Index

June

0.5%

0.1%

Core CPI

June

0.2%

0.2%

Industrial production

June

0.3%

0%

Capacity utilization

June

77.8%

77.7%

NAHB Housing Market Index

July

57

51

The CPI rose a seasonally adjusted 0.5% in June, faster than May's 0.1% growth and in line with analyst expectations. The CPI was led higher by energy prices -- particularly gasoline, which rose 6.3% in June. Year over year, the CPI is up an unadjusted 1.8%.

US Inflation Rate Chart

US Inflation Rate data by YCharts.

Core CPI -- that is, CPI excluding food and energy prices -- rose a seasonally adjusted 0.2% in June. Year over year, core CPI is up 1.6%. While CPI is not the Federal Reserve's preferred measure of inflation, we can still see that inflation remains below the Fed's target level of 2% to 2.5%. This is just one of the targets the Federal Reserve considers as it continues its $85 billion-per-month of long-term assets. Last month the mortgage market and Treasury bonds were hit hard after Bernanke said the Fed could begin tapering its purchases as soon as the end of the year.

Given the rise in mortgage rates, it was curious that homebuilder confidence continued its rise in July. The National Association of Home Builders reported that its Housing Market Index rose from 51 to 57, signaling that more homebuilders are optimistic than are pessimistic about the conditions in the homebuilding market.

NAHB/Wells Fargo US Housing Market Index Chart

NAHB/Wells Fargo US Housing Market Index data by YCharts.

Housing prices have been on the rise as low interest rates and a relative dearth of inventory pull up home prices. The Federal Reserve hopes its low interest rates and asset purchases will keep asset prices rising and create a wealth effect to get consumers to spend more, thus spurring on the economy.

While the economy slowly improves, stocks that miss on earnings will weigh on the Dow. Coca-Cola stock is today's worst-performing Dow component, down 1.4% after it disappointed on earnings. The company reported earnings of $0.59 per share, falling short of both last year's $0.61 and analyst expectations of $0.63. Revenue came to $12.7 billion versus analyst expectations of $13 billion.

Coke's results were weighed on by a slow growth of 1% in global volume, hindered by declines in North America and Europe. CEO Muhtar Kent had this to say: "Our second quarter volume results came in below our expectations, reflecting an ongoing challenging global macroeconomic environment and unusually poor weather conditions in the quarter."

While the stock is down today, Coke is an amazing brand. Fool contributor Morgan Housel recently read through Coca-Cola's annual report and laid out five things he learned from it.

Profiting from our increasingly global economy can be as easy as investing in the U.S. of A. Coca-Cola is one American company that already dominates its market around the world. The Motley Fool's free report "3 American Companies Set to Dominate the World" shows you three more companies that are set to follow Coke's example. Click here to get your free copy before it's gone.

 


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