Why the Dow Dropped Despite Positive Greece News
Jun 18th 2012 10:07PM
Updated Jun 18th 2012 10:14PM
Yesterday was a day some billed as one that could end much of the uncertainty surrounding Europe and worldwide markets. Instead, it just showed how widespread and complicated the economic issues have become in the eurozone. After what most investors agree was a positive result from the Greek elections with the pro-eurozone New Democracy party posting a narrow victory, The Dow Jones Industrial Average (INDEX: ^DJI) was decidedly neutral today; the blue-chip index dropped a fifth of one percentage point.
|Dow Jones Industrial Average||-25.35 [-0.20%]||12,741.82|
|S&P 500 (INDEX: ^IXIC)||1.94 [0.14%]||1,344.78|
Helping dampen the mood was investors' realization that although the New Democracy party had won, its narrow margin of victory meant that it would have to form a coalition with a minority party to gain a pro-bailout majority in Parliament. While that's likely in the next day or so, the election still doesn't solve investors' continuing worries of the country's long-term fiscal stability.
And then there's another little problem; The health of the eurozone's fourth largest economy is looking increasingly dire by the day. Today, Spain's borrowing rates for 10-year bonds rose above 7%, a level that's unsustainable and near the same rate that forced Greece, Ireland, and Portugal to seek a bailout. The high bond rates are stoking concerns that Spain itself will need a bailout after the up to $125 billion bailout for the country's banks.
Kraft (NYS: KFT) was the Dow's biggest gainer today, rising a modest 0.88%. The company made news today by offering to exchange up to $3.6 billion in debt ahead of its upcoming spinoff. Kraft will split itself in two later this year; Kraft Foods will be a grocery-products company while a new global snacks company called Mondelez International will be created. S&P said today that Kraft's ratings and outlook would be unchanged by the debt exchange.
Hewlett-Packard (NYS: HPQ) was in the unenviable position of being the Dow's biggest loser today, dropping 2.73%. The company is particularly exposed to Europe, getting more than 30% of its revenue from the continent, not a great position to be in at a time of increased uncertainty in Europe. Bank of America (NYS: BAC) had the Dow's second largest fall today, dropping 1.77%. The megabank is also highly exposed to Europe and is one of the most sensitive Dow stocks to the global economy. While both these stocks fell big today, these are two stocks that couldn't be more polar opposites for the full year. Bank of America is the Dow's top performer year to date, up 40%, while HP is the worst, dropping more than 18% in 2012.
Many investors rightly look to the Dow for companies with strong dividends and highly sustainable competitive advantages built for the long haul. That's why we've taken an in-depth look at all 30 Dow components and picked out our three favorite dividend Dow stocks that investors can buy right now. You can find the names and analyses of these companies in our brand-new free report, "The 3 Dow Stocks Dividend Investors Need." Read the report now -- it's absolutely free.
At the time this article was published Brendan Byrnes owns no shares of any company mentioned above. The Motley Fool owns shares of Bank of America. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.