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Why B of A Couldn't Save the Dow's Day

By Dan Caplinger – May 6, 2013 at 8:00PM

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The bank soared 5%, but its small share price means it had little impact on the Dow.

The stock market had a good day today, even if the Dow Jones Industrials (^DJI 2.80%) didn't participate. Even though the S&P 500 hit a new record high, the Dow had to settle for a five-point loss on a day on which earnings and other company-specific news took the bulk of the attention. Despite today's being the third anniversary of the infamous Flash Crash, which took the Dow on a 1,000-point intraday swing, volatility fell today and remains extremely low.

Yet the Dow did have some excitement, as Bank of America (BAC 4.15%) jumped more than 5% after agreeing to settle its lawsuit with mortgage insurer MBIA (MBI 5.79%). MBIA investors were the big winners, with the stock soaring 45% on news of the settlement, under which the bank will pay MBIA $1.6 billion in cash as well as extending the insurer a $500 million line of credit and paying back some MBIA debt that B of A holds. That was enough to satisfy investors despite the threat of new litigation from the New York attorney general. But because the Dow is price weighted, the $0.64 gain in B of A shares only pushed the Dow up about five points.

Health insurance giant UnitedHealth (UNH 1.49%) gained more than 2% after a Wall Street analyst initiated coverage of the stock with a favorable overweight rating. Despite concerns about reimbursements from government programs, the analyst thinks UnitedHealth and peer Humana will be able to keep its Medicare Advantage coverage profitable, based on analysis of the benefits that the insurers offer. Given ongoing anxiety about Obamacare, investors are likely to keep seeing relief rallies unless worst-case scenarios play out.

Finally, outside the Dow, 3D Systems (DDD 4.57%) jumped 8% on news that it will become part of the S&P MidCap 400 index. The company was chosen as part of a shuffle that came from Aetna's planned purchase of S&P 500 component Coventry Health, and with Macerich becoming part of the S&P 500, 3D Systems was left to fill the vacancy that Macerich left in the mid-cap index. The move will trigger purchases by mid-cap-tracking funds and sales by small-cap trackers, but investors apparently believe the net impact will be positive, even if it has no fundamental impact on the company.

Fool contributor Dan Caplinger owns warrants on Bank of America. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends 3D Systems and UnitedHealth Group. It owns shares of 3D Systems and Bank of America and has the following options: short Jan. 2014 $36 calls on 3D Systems and short Jan. 2014 $20 puts on 3D Systems. 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.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$30,316.32 (2.80%) $825.43
Bank of America Corporation Stock Quote
Bank of America Corporation
BAC
$32.38 (4.15%) $1.29
UnitedHealth Group Incorporated Stock Quote
UnitedHealth Group Incorporated
UNH
$523.17 (1.49%) $7.66
3D Systems Corporation Stock Quote
3D Systems Corporation
DDD
$8.92 (4.57%) $0.39
MBIA Inc. Stock Quote
MBIA Inc.
MBI
$9.87 (5.79%) $0.54

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

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