With hopes of QE3 temporarily dashed following an uninspiring Fed statement yesterday, investors reacted to negative economic data in a much different fashion than last week. Rewind to one week ago, when markets rallied on the “pro QE3” economic data, which ranged from spiking jobless claims to skyrocketing Spanish borrowing costs. But with the widely-anticipated Fed statement behind us, similar economic data that came out today, which indicated contracting economic activity, wasn’t met with as warm a welcome. The damage? A 250-point tumble for the Dow Jones Industrial Average (INDEX: ^DJI), making it the second worst trading day of the year, and one where only two of thirty Dow components closed higher on the day.
Around the Dow
Moving to individual stocks, it should come as no surprise that, on one of the worst trading days of the year, the two worst Dow performers -- Alcoa (NYSE: AA) and Hewlett-Packard (NYSE: HPQ) -- would also be the worst performing Dow stocks of the past twelve months. Alcoa shares declined 4.2% today in response to economic data suggesting sluggish Chinese and U.S. manufacturing activity. Hewlett-Packard, though not as directly exposed to economic data today, declined 4.1%, as investors attempt to reconcile its place in the broader tech ecosystem going forward. News earlier this week, that Microsoft will be selling its new Surface tablet, puts the HP partner in direct competition for consumer dollars going forward. HP’s decline could also be attributed to today’s analyst downgrade of hard drive makers Seagate (Nasdaq: STX) and Western Digital (Nasdaq: WDC). The downgrade was predicated on weakening PC trends, including year-over-year declines in laptop shipments in both April and May.
Patience is virtue
Iinvestors may not have to wait too long for another Fed-induced rally on abysmal economic data. All it takes is a quick trip to the Federal Reserve website to see that the FOMC meets again at the end of next month, a full two weeks quicker than the previous layoff we just experienced. So, while there will likely be some bumps in the short-term, as investors digest economic data without the mind-bending effects of QE3-mania, it’s important to remember that the Fed plans to “maintain a highly accommodative stance for monetary policy” going forward. And if history has taught us anything, it’s “don’t fight the Fed.”
“Set it and forget it!”
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