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.
Investors came back from the holiday weekend in an uncertain mood, and the Dow Jones Industrials (DJINDICES:^DJI) finished down 24 points for the day. But even with the modest drop in the Dow, there were a number of reasons for bullish investors to be enthusiastic about the prospects for the stock market going forward. Let's take a look at three of them.
1. Financial stocks remained strong today.
The Dow's financial companies have a lot at stake in the various financial markets, but their performance today showed resiliency even in the face of some headwinds elsewhere in the average. JPMorgan Chase (NYSE:JPM) and Goldman Sachs (NYSE:GS) were the two biggest gainers in the Dow today, rising more than half a percent as shareholders start to focus on the lucrative fees that Wall Street firms earn on merger and acquisition activity. Today's announcement that Actavis would buy Forest Labs in a $25 billion deal gives JPMorgan Chase another win from advising Forest, with the New York Times saying that the company could earn $55 million to $65 million from the deal. With Goldman having scored some IPO successes in the recent past and with concerns about a spike in bond interest rates having seemed premature, the Dow's financials are holding up better than many would have given them credit for during January's correction.
2. Core industrial stocks are still delivering gains.
Even though financial stocks often lead the economy, eventually, the manufacturing base of the economy also has to kick into high gear. Boeing (NYSE:BA) today resolved an important open issue, choosing to build the wings for its 777X aircraft in its Everett location just north of Seattle. That puts the wing-production center close to where Boeing will assemble the rest of the aircraft, showing the positive consequences of a labor-dispute resolution that kept the aircraft manufacturer from having to make good on its promise to move its production facilities if workers couldn't come to an agreement. Share prices will rise and fall daily, but Boeing's business has solid prospects years into the future.
3. Remember the context!
It's always tempting to put too much weight on a day's movements, as though green ink or red ink should change your mood about your investments. But with investing, everything depends on the context in which you consider it. For instance, in the context of a 360-point gain last week, today's 24-point drop is insignificant. Last week's gain only earned back about half of the Dow's losses for the year. And of course, 2014's losses for the Dow are the tiniest of pullbacks compared to the huge bull market we've seen over the past five years. If you let one day affect you too much, you'll be too vulnerable to the emotional whiplash that stock investing can give those afflicted with tunnel-vision.