The Dow Flies Toward 17,000, But AT&T and Verizon Fall

Another new record looks likely for the Dow Jones Industrials, but the index's telecom stocks are both falling today.

Jun 6, 2014 at 11:00AM
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The Dow Jones Industrials (DJINDICES:^DJI) kept rocketing higher into record territory on Friday morning, rising 66 points as of 11 a.m. EDT. The Dow has also now come within 100 points of reaching the next psychologically important level of 17,000.

Most of the attention among investors this morning was on the latest employment report from the Labor Department, which showed an increase of 217,000 jobs in May. That report dispelled worries from earlier in the week after a poor report on private-sector jobs, and many market participants celebrated the milestone that the economy had finally created enough jobs to replace those lost during the 2008 recession. The vast majority of Dow components posted solid gains, but both AT&T (NYSE:T) and Verizon (NYSE:VZ) did not join the bullish party, falling 0.3% and 0.6%, respectively.

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Source: Verizon.

The Dow's telecom stocks have been faced with substantial challenges to their supremacy in the U.S. wireless market. One is that long-rumored merger talks between the No. 3 and No. 4 wireless carriers in the U.S. are reportedly heating up again, with many investors believing the two smaller players can convince antitrust regulators that having three roughly equal participants in the wireless industry is superior from a competitive standpoint to having four companies with unequal power and influence. Given the extent to which both AT&T and Verizon have already had to deal with challenges from their smaller rivals, anything that strengthens the competition could prove even more difficult for the two Dow components to overcome.

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Verizon and AT&T also face difficulties in other aspects of their respective businesses. Even after having won a controversial court decision that overturned the net-neutrality doctrine, Verizon is still fighting with Netflix over issues related to the speed of its Internet service. Specifically, the streaming-video provider has told its customers in service messages that buffering issues are tied to sluggishness on Verizon's wireless network, prompting the Dow Jones component to take legal action in response. Given that Verizon is receiving payment for direct access, it's not surprising that Netflix is unsatisfied with what it's paying for, but the telecom argues that other logjams are responsible for the issues customers are seeing. Regardless of the resolution, dealing with net neutrality will be especially important, especially as consolidation among telecoms, cable companies, and other players in the broader sector strengthens AT&T's and Verizon's rivals.

Regardless of whether the Dow Jones Industrials keep climbing, the Dow's telecom stocks will remain under pressure until they can resolve the major issues facing the industry. Given how tough those issues are, Verizon and AT&T could lag behind the Dow for a long while.

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