Why the Dow Jones Is Falling Today

The Dow Jones Industrial Average (DJINDICES: ^DJI  )  is down today as strong retail sales reports are offset by rising oil prices as the situation worsens in Iraq. As of 1:30 p.m. EDT the Dow was down 80 points to 16,764. The S&P 500 (SNPINDEX: ^GSPC  ) was down 11 points to 1,932.

The majority of Dow stocks are down today after some mixed U.S. economic releases.

Report

Period

Result

Previous

Retail sales

May

0.3%

0.5%

Retail sales ex-autos

May

0.1%

0.4%

Import price index

May

0.1%

(0.5%)

Business inventories

April

0.6%

0.4%

The one to pay attention to is the retail sales report. While at first glance growth of 0.3% in May was worse than analyst expectations of 0.7% growth, April's 0.1% growth was revised upward to 0.5% growth. Thus, May's growth was 0.3% above the revised level on a seasonally adjusted basis.

Not all retailers are increasing sales. Today, lululemon athletica (NASDAQ: LULU  ) is down 15% to $37.55 after its profits fell 60% from $0.32 per share, to $0.13 per share this quarter. The company also lowered the high end of its guidance for revenue for the year to $1.77 billion to $1.80 billion, down from $1.77 billion to $1.82 billion. Second, CFO John Currie announced his retirement. Finally, founder and 28% shareholder Dennis Wilson voted against Chairman Michael Casey and another outside director at the company's annual meeting yesterday. Wilson complained that the board is too focused on short-term results at the expense of the long term. Casey replaced Wilson as chairman of the board in December after continuing fallout from last year's yoga pants recall.

Despite the positive retail sales report, stocks are down as oil prices spiked today. Brent crude, the main international crude price, is up 2% to $112 while WTI crude is up 1.5% to $106. 

Brent Crude Oil Spot Price Chart

Brent Crude Oil Spot Price data by YCharts. The above chart has data through yesterday.

Oil prices are rising as the situation in Iraq is worsening. The Islamic militant group the Islamic State in Iraq and Syria, also known as ISIS, has grown increasingly powerful the past few years as Syria has fallen apart in civil war. ISIS has significant control of northeastern Syria. On Saturday, ISIS attacked Mosul, Iraq's second largest city, and gained complete control of the city by Tuesday. Yesterday, ISIS moved south and gained control of Baiji and Tikrit. Baiji has key power stations and refineries while Tikrit, less than 90 miles north of Baghdad, is known for being the birthplace of former President Saddam Hussein.

Iraq is the currently the eight largest oil producer in the world. Prices are rising as oil production is being threatened, but you won't see a huge spike until it becomes apparent that Iraq is falling apart. As oil prices rise consumers and businesses need to spend more on oil and gas, crowding out investment into more productive uses. We will likely see some response by the U.S. soon as it is in the U.S.' and Saudi Arabia's interest to try to keep the situation in Iraq contained.

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