Good News for Some Dow Components Is Bad News for Others

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

As the prospect of U.S. intervention in Syria looks less and less imminent, the major U.S. indexes are all moving higher. As of 12:40 p.m. EDT the Dow Jones Industrial Average (DJINDICES: ^DJI  ) has risen 94 points, or 0.62%, while the S&P 500 is up 0.54% and the Nasdaq is 0.41% higher.

Only a few losers can be found within the Dow at this time. One of the larger drags on the index is ExxonMobil (NYSE: XOM  ) , which has fallen 0.6%. The tensions in the Middle East are easing somewhat after Russia offered a solution to the Syrian chemical-weapons problem. Russian President Vladamir Putin has proposed that Syria give up its chemical weapons in order to avoid a U.S.-led strike. For now, this seems to be the best option for all parties involved. That has caused the price of oil to pull back substantially today, with crude falling 2.3% and unleaded gasoline declining 1.69%. That in turn is causing the Dow's oil components to slip. 

Two other losers within the Dow are Hewlett-Packard (NYSE: HPQ  ) , down 0.7%, and Alcoa, (NYSE: AA  ) which is off by 0.3%. The announcement this morning that HP, Bank of America (NYSE: BAC  ) , and Alcoa will all be removed from the Dow and replaced by Goldman Sachs, Nike, and Visa may be affecting the struggling computer company. While Bank of America is a major financial institution that many consider somewhat stable or even undervalued at its current price when considering what the future may hold for the company, HP and Alcoa don't quite fit that same mold. HP is in the midst of a major turnaround, and Alcoa has been battered by falling aluminum prices. Furthermore, neither company currently operates in an industry that analysts believe will see massive growth in the future as PC sales are knocked by the rise of mobile devices and aluminum stockpiles build around the world.

While my colleague Alex Dumortier doesn't believe the Dow's shuffle will affect these stocks, I disagree. As index funds and other large institutions will have to rebalance their own holdings due to the restrictions imposed upon them based on their rules and regulations, Bank of America may still present value to investors with limited risk, while HP and Alcoa may not. And that could put more selling pressure on the two as the rebalancing occurs. Bank of America is up 1.2% at the time of writing.

Have you missed out on the massive gains in bank stocks over the past few years? There's good news: It's not too late. Bargains of a lifetime are still available, but you need to know where to look. The Motley Fool's new report "Finding the Next Bank Stock Home Run" will show you how and where to find these deals. It's completely free -- click here to get started.


Read/Post Comments (0) | Recommend This Article (3)

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.

DocumentId: 2630660, ~/Articles/ArticleHandler.aspx, 4/17/2014 8:30:56 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...


Advertisement