Morning Dow Report: Will a Telecom Price War Hurt AT&T and Verizon?

The Dow Jones Industrials bounced back from yesterday's declines, with Boeing and Johnson & Johnson helping to lift the average. But telecoms fell in a sign of what could be a painful price war for the industry.

Jan 3, 2014 at 11:00AM

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.

On Friday morning, the Dow Jones Industrials (DJINDICES:^DJI) showed some signs of life after a disappointing performance on the first trading day of the new year. As of 11 a.m. EST, the Dow was up 56 points, recovering a decent chunk of the 135 points it lost yesterday. With bad weather affecting much of the East, traders expected a relatively quiet day. Johnson & Johnson (NYSE:JNJ) and Boeing (NYSE:BA) posted gains, but for AT&T (NYSE:T) and Verizon (NYSE:VZ), troubling signs of an imminent price war weighed on stocks.

In particular, AT&T fell 0.3% after announcing a plan to offer T-Mobile customers as much as $450 in credits to switch to AT&T. The move is just the latest in a series of attacks between the two carriers, and it reveals just how much AT&T is concerned about competition from its smaller rivals in the wireless space. Yet Verizon actually fell more sharply, trading down more than 1% as investors consider the impact on the industry at large. Now that T-Mobile and Sprint have strengthened their competitive resolve, both AT&T and Verizon will likely have to make more profit-trimming moves in order to preserve their market share, and that bodes ill for shareholders going forward.

Boeing gained 0.9% as the aerospace giant waits for its machinists' union to vote today on a key contract that could decide whether its lucrative 777X production program will remain in the Seattle area or move to one of more than 20 states that have expressed interest in housing a 777X facility. Some union members still oppose Boeing's attempted shift away from traditional pension plans, but the pressure to keep 777X production in Washington state could push some workers to vote for the deal. Resolving the labor dispute would be another key move in Boeing's efforts to keep new-plane production on schedule in light of huge order backlogs.

Johnson & Johnson rose about 1.1%. Despite a fairly high valuation, investors have been pleased with J&J's success in its pharmaceutical division, which looks like it could remain a key area of future growth for the health-products giant. One big question for J&J's future growth will be whether it can avoid adverse events like product recalls in 2014. But given the demand for defensive stocks as more investors start to worry about the ability of the bull market to go another year without a major downturn, Johnson & Johnson could remain a popular pick throughout 2014.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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