The Dow Gets Sentimental

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) is on track to close out this week at its lowest point since April. As of 11:45 a.m. EDT, it stands at a seven-point gain after falling more than 200 points yesterday. The index and the larger economy are suffering due to a shift in both investor and consumer confidence. With a very uneven recovery on their hands, both investors and consumers are being cautious with their money -- and it's evident in multiple segments of the economy.

A weak sentiment
This morning's Thomson Reuters/University of Michigan consumer sentiment index for August showed that the uneven economic recovery and anticipation of higher interest rates caused a five-point drop in consumer sentiment about the overall economy. Though July's reading of 85.1 was a six-year high, analysts had expected sentiment to continue rising, so the drop was unexpected. But despite the drop, the overall trend for sentiment is still high enough that economic expansion is expected to continue, though it may ease slightly.

Consumers may be focusing on big-ticket items while interest rates are still favorable, with automakers reporting a 14% increase in sales compared to the same time period in 2012. But the recent spate of retail chains' earnings reports has been telling a consistent story of consumers holding off or scaling back their purchases. Wal-Mart (NYSE: WMT  ) may have reported growth in its second-quarter earnings this week, but it also slashed its forward guidance for the remainder of 2013 in half. Citing similar factors as Macy's (NYSE: M  ) had earlier in the week, Wal-Mart was seeing lower traffic in its stores and declines in sales growth. Macy's also cut its forward guidance, to 2% for the full year.

Investors are wary too
For the past few years, investors were happy to see companies cut costs in order to boost their bottom lines. But as the economic recovery moves forward, investors are focusing their attention on revenue growth. Since cost-cutting can only go so far, expanding revenue is the key for profitability at any company. But with consumers being cautious, sales aren't growing at the pace that investors like to see, which can lead to stocks seeing red despite seemingly good earnings reports.

One segment of the market that delivered to investors in all areas is the big four banks. Bank of America (NYSE: BAC  ) was the last of the big four to report earnings, but it came out swinging. With both top- and bottom-line growth, investors were happy to see that the bank didn't focus all of its efforts on just cost-cutting -- though it did cut out $1 billion in costs.

Looking ahead
As the economy continues to move along, both investors and consumers will have to come to terms with the changing environment. And though the recovery may not be moving along as smoothly as everyone would like it to, confidence is an important underlying factor.

Many investors are terrified about investing in big banking stocks after the crash, but the sector has one notable standout. In a sea of mismanaged and dangerous peers, it rises above the rest as "The Only Big Bank Built to Last." You can uncover the top pick that Warren Buffett loves in The Motley Fool's new report. It's free, so click here to access it now.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2598384, ~/Articles/ArticleHandler.aspx, 9/25/2016 1:45:59 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/23/2016 4:55 PM
^DJI $18261.45 Down -131.01 -0.71%
BAC $15.52 Down -0.08 -0.51%
Bank of America CAPS Rating: ****
M $36.62 Up +0.36 +0.99%
Macy's CAPS Rating: **
WMT $72.35 Up +0.08 +0.11%
Wal-Mart Stores CAPS Rating: ***