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.
Many commentators are saying today's drop is because people are "taking gains." Another way to phrase this is "we have no idea."
One possibility is that investors are worried the two-year federal budget deal awaiting votes in Washington means the Federal Reserve will begin tapering asset purchases at its meeting next week. But the Treasury bond market is relatively unchanged, with the 10-year Treasury yield rising just 10 basis points to 2.81%.
Another possibility is the market is reacting to Joy Global's (NYSE:JOY) earnings. Joy Global is an equipment manufacturer for mining and energy companies. Equipment manufacturers are the canaries in the coal mine for the commodity sector so Joy Global's miss signals worse-than-expected activity in the space. The company missed earnings expectations by a penny, reporting earnings per share of $1.11. Revenue was down 26% year over year to $1.18 billion but was above analyst expectations of $1.12 billion.
The big reason for the stock drop is that the company lowered its guidance for next year. Joy Global now expects earnings per share of $3.00-$3.50 and revenue between $3.6 and $3.8 billion. Analysts had estimated 2014 earnings of $3.81 and revenue of $3.9 billion.
That said, the basic materials sector is leading the market down with a 1.5% drop, followed closely by industrial goods with a 1.4% drop.
The Dow's largest component, Visa (NYSE:V) is up nearly 3% on the news that MasterCard (NYSE:MA) is increasing its dividend 83% and instituting a $3.5 billion share buyback program -- moves signaling that MasterCard thinks the good times will continue. The company also announced a 10-for-1 stock split, which some people care about but thankfully most people realize is immaterial. Both Visa and MasterCard have high stock prices, in fact Visa is the largest stock on the price-weighted Dow. Were Visa to do a 10-for-1 split, the company would go from being the Dow's largest component to its smallest, just behind Cisco.
Dan Dzombak can be found on Twitter @DanDzombak or on his Facebook page, DanDzombak. He has no position in any stocks mentioned. The Motley Fool recommends MasterCard and Visa. The Motley Fool owns shares of MasterCard and Visa. 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.