Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
Those who follow the stock market know all too well that it's been in a downward trend recently. Both the Dow Jones Industrial Average (^DJI 0.01%) and the S&P 500 (^GSPC 0.24%) have fallen for four straight sessions, and this morning the Dow and the S&P 500 are both flirting with five straight losses. Positive news on the housing front, which featured a 7.9% gain in new-home sales in August, wasn't enough to fully counteract fears about the impact of higher mortgage rates on the housing market. Moreover, with the escalating budget fight in Congress, investors aren't certain whether the debt ceiling and other issues will be resolved favorably. At 10:50 a.m. EDT, the Dow was up a single point, while the S&P 500 had lost about half a point.
Long downward trends inspire fear about the market, but you also have to look at how much the different indexes fall in those streaks. The Dow and the S&P 500 are both down about 2% over the past week, but that still leaves the benchmarks up for the month, with the Dow up 3.5% and the S&P 500 gaining almost 4%. Panicking about an insignificant decline just doesn't make sense for long-term investors.
Moreover, daily declines don't always make sense. Johnson & Johnson (JNJ 1.49%) fell 0.6% despite news that the company won multiple contracts from the Defense Department. Even sizable government contracts aren't enough to move the needle at J&J individually. But taken as a broader sign of continued interest among customers for the company's products, J&J's prospects continue to look favorable in the long run.
Of course, the same sometimes holds true for advancing stocks. JPMorgan Chase (JPM +2.16%) climbed 1.4% even as the bank faces the possibility of paying billions more in legal settlements. Despite the wide range of controversial practices on which the bank has had to deal with lawsuits and regulatory allegations, JPMorgan investors seem to cheer every time the company looks set to resolve at least some of those troubles.
Still, some stocks are worth worrying about more than others. Among S&P 500 stocks, J.C. Penney (JCP +0.00%) was a big decliner, plunging almost 14% on a Goldman Sachs report that the company's debt could be losing its investment appeal. In advising J.C. Penney bond investors to protect their capital from worst-case scenarios, Goldman has Penney shareholders worried that their stock could eventually become worthless.
