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.
The government shutdown entered its third day today, and investor impatience with Washington's inability to reach a solution on the federal budget quickly once again showed itself in another drop in the stock market. As the government also increasingly starts wrestling with the debt-ceiling debate, which adds an anticipated mid-October deadline into the mix, investors are starting to wonder whether lawmakers and the president will be able to reach a viable compromise in time to save the economy from substantial impacts. The Dow Jones Industrials (^DJI -0.24%) dropped by almost 200 points earlier in the day, and still posted substantial losses despite a later rebound, finishing down nearly 137 points and closing below the 15,000 level.
In light of the ongoing government crisis, it's interesting to look at how the newest members of the Dow have done since entering the average a week and a half ago. That is a short period of time, but the differences in performance shed some light on where the market's biggest concerns are.
On one hand, the financially oriented stocks that were added to the Dow have underperformed the average's roughly 3% loss since Sept. 20. Goldman Sachs (GS -0.55%) has been the worst performer of the three, falling 7.6% since joining the Dow. It's easy to focus on obstacles Goldman faces in today's market environment, as the challenge of rising interest rates and growing concerns about the length of the current bull market could point to short-term headwinds in its earnings prospects. Over the long run, though, Goldman has managed to survive even the toughest economic conditions, adapting to failure during the Great Depression and maintaining its relative strength amid the more recent financial crisis.
Visa (V 0.76%) has dropped about 5.1% since entering the Dow in September. The card-network company is more directly sensitive to changes in overall economic activity, as its revenue is directly tied to the amount of transaction volume that runs through its network. Yet what many U.S. investors don't realize is that much of the world is still using nonelectronic means like cash and checks to conduct the majority of their transactions. That gives both Visa and its rivals a big opportunity to grow, and as the largest of its peers, Visa has the inside track at continuing to draw more business worldwide.
One key to watch in both Goldman and Visa is how their earnings fare for the third quarter. For Nike (NKE 1.12%), earnings were one of the key drivers in pushing the stock up by 3.3% since Sept. 20. Surprisingly, though, earnings strength for the athletic shoemaker came not from emerging-market giant China but rather from Nike's core North American market. One key message you should take from Nike's experience is that emerging markets aren't the only way to profit in consumer goods, especially with high-value branded products that have the most pricing power in developed consumer markets.
Again, you shouldn't draw too many conclusions from such a short-term perspective on performance. At the same time, though, keeping an eye on the newest Dow members in the weeks and months to come will give you some insight into whether they truly deserved their places among the 30 companies in the Dow.
