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Why the Dow Is Lying to You Today

By Dan Caplinger - Apr 19, 2013 at 11:03AM

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The broader market is actually doing well, but IBM's results are weighing on the average.

The Dow Jones Industrials (^DJI 1.76%) usually do a pretty good job of tracking the movements of the overall stock market. But occasionally, its idiosyncrasies rear their heads and present a misleading picture of the general health of stocks. Today, that disparity couldn't be clearer: The Dow's 46-point decline as of 10:55 a.m. EDT suggests that this week's stock market losses are continuing in earnest. Yet broader-market measures like the S&P 500 are up on the day. What's behind these conflicting figures, and which measure is the right one to pay attention to?

The key to the Dow's drop today is IBM (IBM 1.74%), which fell 7.5% after releasing a disappointing first-quarter earnings report. The company suffered from delays in completing major sales of mainframe computers and software packages, which contributed to a 5% decline in overall revenue. Although the company kept its full-year earnings guidance stable, analysts quickly swarmed in to downgrade the stock.

As important as IBM is, the Dow gives the tech giant far more weight than it deserves. With today's $15.50 share-price drop, IBM sliced almost 120 points off the Dow. In other words, without IBM's influence, the Dow would have posted sizable gains that would be more in line with the overall market's performance.

Still, IBM wasn't the only Dow stock suffering today. General Electric (GE 2.27%) also weighed in with earnings today, and its stock fell 4% as even as it announced a big rise in net income and beat expectations for revenue. The company cited weakness in Europe, but that should have come as no surprise to investors, suggesting that the big decline has more to do with worries about broader macroeconomic concerns for the future than with GE's past results.

Elsewhere, positive earnings news overwhelmed some of the gloom in the Dow. Chipotle Mexican Grill (CMG 4.59%) has soared more than 9% after posting strong results last night. Comparable-store sales rose just 1%, but overall revenue jumped 13% for a 22% rise in net income. Even as the company continues to face high food costs, the fact that the healthy-food vendor managed to beat expectations demonstrated Chipotle's ability to weather tough conditions without compromising on its core values.

Finally, Restoration Hardware (RH 4.53%) has soared almost 18% after beating estimates for earnings and revenue. With same-store sales gains of a whopping 26%, the home-furnishings retailer gave favorable earnings guidance for the coming year. For those who believe the recovery in housing will be a key part of the overall growth picture for the U.S. economy, Restoration Hardware's results bode well for the future.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$33,212.96 (1.76%) $575.77
International Business Machines Corporation Stock Quote
International Business Machines Corporation
$139.27 (1.74%) $2.38
General Electric Company Stock Quote
General Electric Company
$78.76 (2.27%) $1.75
Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
$1,402.42 (4.59%) $61.51
RH Stock Quote
$291.03 (4.53%) $12.62

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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