Today's market action looked like a repeat of scenes we saw back in 2000 and 2001, when the tech sector posted regular and consistent share-price declines, even as many so-called "old-economy" stocks held up reasonably well. The same disparity occurred today, with the big damage coming from Microsoft's 11% plunge. Yet, strength from industrial and pharmaceutical stocks helped keep the Dow Jones Industrials (DJINDICES:^DJI) from losing huge amounts of ground, and the Dow finished the day down just five points, while the S&P 500 (SNPINDEX:^GSPC) eked out gains on the day.
Microsoft's poor showing rippled throughout the tech sector, as Dow component Hewlett-Packard (NYSE:HPQ) also saw substantial losses that amounted to more than 4.5%. As much as HP would like to move away from its PC-heavy hardware business in light of Microsoft's poor showing, the turnaround story there will take a long time to play itself out. In the near term, the same pressures that have hit other PC-related stocks are likely to weigh on HP's results. Nevertheless, if you believe that the company's long-term strategy will be successful, then the already-known bad news from PC demand shouldn't affect your investing thesis, and lower prices should make the stock more attractive.
In addition to General Electric's big gains for the day after reporting earnings, pharma stocks Johnson & Johnson (NYSE:JNJ) and Pfizer (NYSE:PFE) both posted nice gains of more than 2%. For J&J, an analyst downgrade of rival Merck yesterday highlighted the competitive threat that J&J's Invokana diabetes drug could pose to its existing blockbuster Januvia. With high hopes for Invokana, if J&J can tap into a portion of the billions of dollars that Januvia has brought in over the years, it could create a meaningful boost in earnings, even for a company of J&J's size. Meanwhile, Pfizer reportedly decided not to try to outbid Amgen for cancer-drug producer Onyx Pharmaceuticals, even as investors in Onyx have bid the shares well beyond Amgen's original $120 offer. Buying promising pipelines is a valid strategy, but having the discipline not to overpay is essential, and shareholders are right to reward Pfizer today.
Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson and Microsoft. 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.