The Dow Fights to Stay Positive; Are Merck and Coca-Cola Signaling a Recession?

The Dow Jones Industrials fell back from an early gain Thursday, but strength in bonds and recession-proof stocks pointed toward doubts about the economy.

May 29, 2014 at 11:00AM

On Thursday morning, the Dow Jones Industrials (DJINDICES:^DJI) initially jumped out to solid gains as investors weighed the 1% reduction in first-quarter U.S. GDP and a big drop in first-time unemployment claims. Yet as the bond market continued to see yields fall, the Dow lost all of its gains before bouncing upward again to 14 points in the green as of 11 a.m. EDT. Merck (NYSE:MRK) and Coca-Cola (NYSE:KO) were among the best performers in the Dow Jones Industrials in early trading, and given their characteristics of being resistant to recessionary conditions, their positive moves raise questions about whether investors are preparing for the end of the economic expansion.


Throughout 2014, investors have generally prepared for weak first-quarter GDP numbers to reflect temporary phenomena like unusually cold winter weather. As a result, when initial estimates of economic growth came out earlier this year, the Dow didn't respond with a major move downward. Yet underlying the market's mood lately has been growing nervousness about how much further the Dow Jones Industrials can climb during this bull-market period.

Mrk Vaccine

Source: Merck.

In response, investors have turned to stocks with defensive characteristics. Merck, for instance, is up more than 1% today, and its pharmaceutical business provides reliable cash flow from a stable of blockbuster drugs. Merck has its share of long-term risk, as it needs to keep developing its pipeline of future drug offerings in order to sustain overall revenue. Yet with a dividend above 3%, the pharmaceutical giant attracts investors who are willing to take on that risk in the hopes of finding a stock that will hold up better in a recessionary environment than its Dow peers. People can't choose to stop taking drugs they need to survive, and that gives Merck staying power that consumer-discretionary stocks and makers of less vital products lack.

Coca-Cola and Wal-Mart (NYSE:WMT) also gained ground today, and both of those companies exhibit defensive characteristics as well. Coca-Cola products might not be an absolute necessity, but with the drink giant having branched out into noncarbonated beverages such as water, tea, and sports drinks, its products are part of many consumers' weekly grocery runs. Wal-Mart's business has tended to grow in past recessions, as customers who can afford pricier stores in better economic times often become more bargain-conscious and trade down to Wal-Mart under financial strain. Both Coca-Cola and Wal-Mart have had their growth troubles in the recent past, which makes it even more likely that share-price gains reflect anxiety among stock market participants rather than confidence in their specific business prospects.

Obviously, the U.S. economy will fall into recession at some point. For now, though, it appears most likely that the economy will bounce back from the first-quarter drop, and that purchases of defensive stocks like Merck, Coca-Cola, and Wal-Mart are simply ways to diversify stock portfolios with lower-risk names.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola. The Motley Fool has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. 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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