Why the Dow Is So High Today
Dec 11th 2012 3:09PM
Updated Dec 11th 2012 3:10PM
Given the title of this article, it was tempting to make a joke about the now-legal status of cannabis in Washington state. However, the real reason behind today's rally originates all the way across the continent in the other Washington -- Washington, D.C., that is, where the lawmakers aren't quite as chill when it comes to cannabis consumption. As of 3 p.m. EST, the Dow Jones Industrial Average is up by about 76 points, or 0.56%.
What's the Dow smokin'?
Gauging the headlines of the major financial websites, it seems clear that traders are speculating over the possibility of a solution to the fiscal cliff, the series of tax hikes and spending cuts that are set to take effect in January in the absence of (gasp!) congressional action.
Earlier today, Republican House Speaker John Boehner took to the floor to criticize the White House and call on the president to identify what specific cuts Democrats are willing to make. "Where are the president's spending cuts?'' Boehner asked. "The longer the White House slow walks this process, the closer our economy gets to the fiscal cliff."
Meanwhile, House Democratic Leader Nancy Pelosi sounded a more optimistic tone, quoted by The Wall Street Journal as saying: "I don't think there is any reason for us not to come to the table to make an agreement. Every day that we can remove all doubt about the full faith and credit of the United States of America ... is a good day."
Of course, whether they do come to an agreement before plunging the economy over the proverbial cliff remains to be seen. As I noted earlier today, the pigs ain't in the pen yet.
Today's best- and worst-performing Dow stocks
Technology stocks are among the day's biggest winners. Shares of Intel are currently leading the Dow higher, up by 2.6%, while Microsoft is close behind with a 1.4% gain. To say that Intel has struggled this year would be an understatement: It's down 14% since the beginning of 2012 as investors question whether the company can continue to grow.
More specifically, the concerns surrounding Intel are twofold. First, it's universally acknowledged that the company has thus far missed out on the mobile-computing revolution, ceding the territory to the likes of Qualcomm and ARM Holdings . Intel's challenge here is that its chips, while unmatched in performance, are also unmatched in power-consumption, making them untenable for smartphones and other less stationary devices. Second, Intel continues to generate the lion's share of its revenue from the personal-computer industry, which itself is struggling.
Despite these concerns, many analysts, myself included, have become extremely bullish on Intel's beaten-down stock. Fool technology analyst Anders Bylund called it "ridiculously undervalued," noting, among other things, that the tech giant now pays the third-highest dividend yield on the Dow, following only longtime dividend stalwarts AT&T and Verizon. In addition, Fool senior analyst Erik Bleeker postulates that the company could afford to raise its dividend has much as 50% next year. Not to mention, as Eric pointed out, Intel recently issued $6 billion in debt to fund even more share buybacks, which, as Anders observed, could serve as a "serious rocket booster for long-term share prices."
It's for these reasons, in fact, that I recently bought shares in Intel. Before deciding whether you should, too, check out our in-depth report on Intel, which provides a comprehensive overview of the risks and opportunities associated with holding its stock. You can access the report by clicking here.
Alternatively, heading lower for the day are shares of McDonald's . While nobody likes to see stock prices go down -- that is, unless you're a short-seller or you're looking for a good opportunity to buy -- shareholders in the hamburger chain shouldn't be overly concerned at today's price movements. First off, the stock is only marginally lower. And second, shares in the company shot up yesterday after McDonald's announced better-than-expected same-store sales for the month of November. As a result, today's pullback is likely the result of profit-taking by traders.
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The article Why the Dow Is So High Today originally appeared on Fool.com.John Maxfield owns shares of Intel. The Motley Fool owns shares of Intel, McDonald's, Microsoft, and Qualcomm. Motley Fool newsletter services recommend Intel, McDonald's, and Microsoft. 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.
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