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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.
Despite a few of the companies on the Dow Jones Industrial Average (DJINDICES: ^DJI ) reporting strong earnings, the blue chip index continued yesterday's 175-point decline today as it lost 318 points, or 1.96%. Compared to the other major U.S. indexes, the S&P 500 and the Nasdaq, that was a good result as they lost 2.09% and 2.15%, respectively.
Within the Dow, the four biggest losers of the day were General Electric (NYSE: GE ) down 3.37%, 3M (NYSE: MMM ) down 3.33%, Boeing (NYSE: BA ) down 3.30%, and Visa (NYSE: V ) down 3.07%. Let's take a look at why they were the top losers of the day.
For General Electric and 3M, the cause for their declines was mostly the macro issues that investors were dealing with today. Yesterday, China reported that manufacturing within the country had fallen. That is the first time in six months the country experienced a decline in its manufacturing industry, but more importantly, this was a sign to investors that the world's second largest economy may be slowing. That news, combined with investors pulling money out of emerging markets, really caused problems for the multinational companies. Both General Electric and 3M rely heavily on new infrastructure being built in established economies to help sustain its sales and emerging markets as a way to grow its business. If both China and emerging markets around the world begin to falter at the same time, these stocks will likely see sales growth rates slow, and may also see sales actually decline.
As for Boeing, all of the above again rings true, but the company was additionally hit with an individual problem. Norwegian Air Shuttle, an airline that owns a few 787 Dreamliners, is looking for compensation for flaws that have arisen with the new aircraft. Boeing has only delivered 115 Dreamliners, so if the company does pay compensation for damages caused to the airlines that purchased those planes, it shouldn't be a massive check. However, the company is rolling out more 787s and new aircraft lines during the next few years, so this is not a precedent that the company or investors want to set.
Lastly, as for Visa, again all of the above is true. Now that the world is truly interconnected with business, money, and travel, Visa will likely see lower transactions if the major markets begin to slow and, thus, lower revenue. Additionally, when tough economic times hit, default rates on credit cards and other loans typically increase, which could then hurt Visa's business further.
All in all, today's big losses were all caused by macro-economic fears, not even real events. China's manufacturing falling one month is certainly not a good sign, but at this point, it's not yet a trend, so investors shouldn't be too concerned. As for the fears that emerging markets are weakening and slowing -- while it may be true, and growth rates for large multinational companies may be hurt -- at least their core businesses are still healthy. Therefore, investors shouldn't bail based on this one weakness.
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