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.
As investors prepare to bid farewell to a successful 2013 for the Dow Jones Industrials (^DJI +0.09%), they've started to position themselves to identify the trends that could produce the most profits for 2014. You can see some of the crosscurrents in the Dow's performance today, with an overall gain of 26 points hiding some tension beneath the surface among two important sectors of the market. Disney (DIS +0.72%) and Coca-Cola (KO 0.47%) were among those stocks that climbed the most today, while ExxonMobil (XOM +2.28%) and Chevron (CVX +1.69%) were both on the losing side.
The bull market might celebrate its fifth anniversary in a few months, but only now are consumers really starting to trust in the staying power of the rally and the accompanying economic recovery. For Disney, which gained 2.5% today, identifying the long-term value of entertainment by making major high-risk acquisitions of content-producing companies has turned out to be a prescient move, with the potential to drive future growth for years as consumers get more financially healthy and can afford to spend more. Even as cable companies and streaming-video providers fight over getting high-quality content, Disney has what they want the most -- and so far, the media giant has capitalized on those willing to pay for Disney's content.
The other thing that the recession forced consumer stocks to do is to make the most of tough situations. That's what helped drive Coca-Cola stock higher by 1.1%, with analysts over the weekend pointing at the soft-drink giant's capacity to mount a comeback despite concerns about the health impact of its sugary beverage lines. A stronger consumer has more capacity to contribute to growth in other more popular drinks like flavored water and juice, and as long as Coca-Cola can use its extensive distribution networks and smart operational savvy on the bottling front, it should be able to adapt to changing trends and eventually produce more growth.
Energy, though, presents a greater conundrum for investors, as Exxon dropped 1.2% and Chevron declined 0.8% today. On one hand, an economic recovery should boost energy use, creating demand that should support prices and help Exxon and Chevron boost their overall profits. Yet on the supply side, smaller producers are clamoring to restart projects that they suspended when natural gas prices were much lower, and the resulting increase in available oil and natural gas could present problems for the energy giants. Moreover, as the revolutionary recovery strategies pioneered in the U.S. spread abroad more extensively, they could boost supply even further -- solving the problem of sustaining production levels but only at the cost of price drops. Exxon and Chevron will have to search out ways to diversify their holdings in order to benefit from changing trends in energy in the long run.
