Why the Dow Jones Is Dropping Today

High oil prices and slowing world growth weigh on the stock market today.

Jun 11, 2014 at 1:30PM

The Dow Jones Industrial Average (DJINDICES:^DJI) had been nearing a record high of 17,000 this week but is down today after numerous events affecting the airline market and world economy in general. As of 1:30 p.m. EDT the Dow was down 100 points to 16,841. The S&P 500 (SNPINDEX:^GSPC) was down 6 points to 1,945.

There were a few economic releases today that are pulling the markets, especially the airline market, down. First, the World Bank cut its forecast for 2014 growth from 3.2% to 2.8% as the U.S.' harsh winter and the conflict in Ukraine weighed on global growth.


Source: The World Bank.

The second economic release was from the Organization of the Petroleum Exporting Countries, more commonly known as OPEC. OPEC announced that it would keep its production target unchanged at the level of 30.0 million barrels per day. OPEC has been producing less than this amount as of late as tensions in Libya curb the country's oil production and exports. Tensions around the world have been keeping oil prices high so far this year.

Brent Crude Oil Spot Price Chart

Brent Crude Oil Spot Price data by YCharts

Many were hoping that OPEC would increase production; OPEC's members are highly dependent on high oil prices so they have an incentive to not overproduce. OPEC's reasons for not raising production show that OPEC is more confident on the economy than the World Bank. OPEC projects that world economic growth will be 3.4% in 2014 and that world oil demand will rise to 91.1 million barrels per day, up from 90 million barrels per day in 2013. OPEC believes that production from non-OPEC countries, including the U.S. and Canada, will grow by 1.4 million barrels per day.

While many people tout U.S. shale, deepwater drilling, and Canadian oil sands as a threat to OPEC, in reality that's not the case. These sources are very high cost and in effect they create a floor price for the world's oil markets. If oil prices drop then these sources quickly become mightily unprofitable. As such, OPEC is happy to see high cost oil production take up demand as it keeps prices high around the world.

Airline industry
The biggest industry to be hurt by slowing world growth and high oil prices is the airline industry. The airline industry is being weighed on by the two releases as well as a profit warning from German airline Deutsche Lufthansa. Europe's largest airline in terms of passengers, Lufthansa is seen as a bellwether for world airlines. The carrier had expected profits of $2.3 billion to $2.6 billion this year. Today it cut its forecast to $1.76 billion as tougher competition and events around the world including pilot strikes and Venezuela's devaluation cut into its profits. Deutsche Lufthansa's stock dropped 14% in Germany today. On the S&P 500, airlines are leading the stock markets drop with Delta Airlines down 3.24%, and United Continental down 4.3%. On the Dow Jones Industrial Average, Boeing is leading the Dow's drop today down 2.1% to $134.41.

Benefit from High Oil Prices
You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Dan Dzombak can be found on Twitter @DanDzombak or on his Facebook page, DanDzombak. He 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information