Why the Dow Has Fallen 100 Points for the Second Day in a Row

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.

The Dow Jones Industrial Average (^DJI -0.98%) was down 100 points to 15,742 as of 1:30 p.m. EST, with 23 of the index's 30 stocks in the red, after some mixed reports on the economy and fears of Federal Reserve tapering. The S&P 500 (^GSPC -0.46%) was down five points to 1,776.

There were four U.S. economic releases today.

While the new unemployment claims level jumped from last week, last week's number was abnormally low, affected by a seasonal adjustment, and this week's is likely abnormally high, also due to a seasonal adjustment. The main thing to remember with the weekly reports is that number of claims is trending lower toward the level you would see when the economy is at full employment.

The two figures to pay attention are the business inventories report and the import price index, as retail sales were in line with analyst expectations. Business inventories grew 0.7% in October, while analysts were only expecting a 0.3% growth. The large increase in inventories without a large increase in retail sales worryingly indicates businesses could be stuck with excess inventories, challenging profits.

The import price index dropped 0.6% month over month. Inflation has been dropping this year, particularly as energy prices have fallen. November was no different, with a 3.1% drop in fuel prices leading to the import-price decrease. Excluding fuel, import prices were unchanged month over month.

Besides the mixed economic news, the other reason the Dow is down are growing fears of the Federal Reserve tapering its asset purchases. Treasury bonds sold off today with the yield on the 10-year Treasury rising to 2.88% and the rate on the 30-year fixed mortgage unchanged near 4.54%.

10-Year Treasury Rate data by YCharts.

Investors' tapering fears have been spurred by positive jobs numbers last month and the U.S. reaching the 7% unemployment level. That worry increased yesterday with news that Congress had come to a budget agreement for the next two years, decreasing uncertainty from Washington. Neither chamber has yet voted on the budget.

Foolish takeaway
With loads of economic news, both good and bad, who knows where the market will go. Predicting where the broad market will go in the short term is a game for fools (with a lowercase "f"). Stocks can always get more overvalued. When things get frothy, it's worthwhile to build up some cash on the side for when prices inevitably fall.

The Motley Fool has always taught that Foolish (capital "F") investors don't invest in the broad market. We invest in great companies at good prices, continue to educate ourselves, and hold on to our great companies over the long term. The market will fluctuate (sometimes massively), but great companies will win out over the long run.