How 2 Rising Fears Could Keep the Dow on the Defensive

Falling markets always look for catalysts, and two important ones are starting to rear their heads again.

Feb 5, 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.

After a one-day respite, stock markets are falling again, with the Dow Jones Industrials (DJINDICES:^DJI) losing 44 points as of 11 a.m. EST. Broader markets are posting larger declines, and two main culprits appear to be at fault: economic data and the return of the debt-ceiling debate. Sizable drops in shares of Boeing (NYSE:BA) and United Technologies (NYSE:UTX) explain how both of these factors are in play in the stock market's downward moves lately.

The five-year bull market in stocks has rested on the foundation of economic recovery following the financial crisis, and in the U.S. particularly we've seen solid gains in employment and GDP growth, albeit not necessarily at the pace that many would prefer. More recently, though, there have been hints of slowing growth. This morning's disappointing ADP private-sector jobs report added to fears that the recovery might actually be coming to an end just as the Federal Reserve had hoped to take away the support it instituted to prop up economic prospects. Bulls point to one-time seasonal factors as explaining the negative data, but it'll take time to prove or disprove their theory.

Meanwhile, Washington is also having its traditional influence on the stock market, as an imminent return of the debt-ceiling debate once again threatens the creditworthiness of the U.S. and introduces new unpredictability into the financial markets. In particular, the possibility of further austerity measures like the sequestration provisions explains at least part of the steep declines in Boeing and United Technologies today, as both companies have extensive exposure to the U.S. budget through their military sales. Until politicians come to a lasting resolution of the nation's debt and the role Congress should play in limiting it, investors will hold their breath and hope that Washington doesn't do anything that irrevocably damages the financial markets.

In the end, though, investors need to look beyond general trends to find companies that can take advantage of positive factors while overcoming negative ones. Merck (NYSE:MRK), which was up more than 1.5% this morning, provided a good example in its most recent quarterly report. Even though the drugmaker experienced drops in revenue and net income due to sales of generic versions of its off-patent drugs, it also announced a potentially lucrative collaboration with other pharma giants.

Fears of poor data and problems like the debt-ceiling debate could send the Dow down in the short run. But in the long run, those fears will most likely disappear, leaving smart investors with an opportunity to pick up shares of the stocks they want on the cheap. That's a trade-off that any long-term investor should be willing to make.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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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