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.
Usually, investors expect the Dow Jones Industrials (DJINDICES: ^DJI ) to move roughly in line with the broader markets. Yet today we're seeing a rare divergence between the Dow and other market measures. As of 10:50 a.m. EDT the Dow is up 39 points, even as the S&P 500 is down 0.3% and the Nasdaq has dropped 0.6%.
The biggest reason for the Dow's outperformance owes to a single stock: Apple (NASDAQ: AAPL ) . The tech giant's stock has dropped another 6% this morning, adding to yesterday's losses in the wake of its announcement of new iPhone products. With the new iPhone 5S featuring only minimal design modifications and the emerging-market-targeted iPhone 5C sporting higher price points than many investors had hoped to see, Apple can't count on its refreshed offerings to drive the growth to sustain its recent share-price gains.
What's ironic about the Dow's outperformance is that yesterday's shift in the composition of the average raised some of the same criticisms about Apple's absence from the Dow that we've seen come up numerous times in past years. With Apple boasting the largest market capitalization in the U.S. stock market, many see its omission from the Dow as an unforgivable oversight despite the impracticality of including the high-priced stock within the price-weighted index. Yet today that omission helped save the Dow from what could have been triple-digit losses.
Adding to the irony is that Apple's tech rivals IBM (NYSE: IBM ) and Microsoft (NASDAQ: MSFT ) are among the biggest gainers on the Dow. IBM's 1.5% move comes in the face of some strategic moves designed to refocus its business and improve internal efficiency. Yesterday, Synnex agreed to buy IBM's customer-care outsourcing unit, paying $505 million in cash and stock to acquire the business and allowing IBM to concentrate more on higher-margin software acquisitions. At the same time, IBM has gotten a lot of attention for its decision to shift retiree health insurance coverage away from its employer-sponsored plan to an outside health-insurance exchange, which should help IBM define its cost burden even as health care expenses look poised to rise in the future.
Microsoft has gained 1.2% as investors see Apple's weakness as a potential opportunity for its Redmond rival. With Microsoft's future up in the air in light of the impending departure of longtime CEO Steve Ballmer, the company's operational restructuring plans, and its recent purchase of Nokia's device business, investors hope the coming release of the Xbox One and an expected refresh of the Surface tablet line will deliver long-awaited hardware victories. Yet until Microsoft comes up with a clearer long-term strategic vision, the stock will remain vulnerable to downturns if its products fall short of those hopes.
Finally, Verizon (NYSE: VZ ) is relatively flat as it plans its record $49 billion issuance of corporate debt in connection with its complete takeover of its Verizon Wireless unit. With eight different types of bonds being offered, Verizon had to offer attractive spreads to get buyers to commit to purchases, especially in a rising-yield environment. Still, with Verizon focusing on long-term maturities, it will lock in relatively low interest costs for decades to come.
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