Dow Shows Life After Last Week's Decline
Jun 3rd 2013 1:11PM
Updated Jun 3rd 2013 2:35PM
After declining 208 points last Friday to end last week lower by 1.22%, Dow Jones Industrial Average as up 63 points, or 0.41%, as of 12:50 p.m. EDT today. The other two major indexes are not faring so well: The S&P 500 is currently down 0.11%, while the Nasdaq has lost 0.68% of its value.
One reason the broader indexes are declining is the weak manufacturing report that was released this morning. The Institute for Supply Management reading fell 1.7% during the month of May to 49%, marking the first time the report indicated a contraction since November 2012 and just the second time since July 2009. The report was surely not a good sign for the economy.
A few Dow losers
Sprint Nextel shareholders are being urged by the Institution Shareholder Service to take SoftBank's $20 billion buyout big. An ISS report points to the fact that Sprint would have the financial backing it would require to gain more spectrum, which the company needs to do if it truly wants to compete with Verizon and AT&T . The two top players in the wireless-service industry are having a rough day, likely because of this report. The stronger Sprint becomes, the more pressure Verizon and AT&T will feel to change their strategies, take care of their customers, and be competitive with the other carries on price -- steps that would likely hurt the companies' bottom lines. Shares of both Verizon and AT&T are down about 0.3%.
Along with the Dow's wireless companies, both of the index's banking stocks are dropping today. Shares of JPMorgan Chase are down 1.7%, while Bank of America has lost 2.4, making it the worst-performing Dow stock this afternoon. Today's banking decline is being blamed on rising interest rates. Goldman Sachs analysts recently commented that rising interest rates will affect several sectors, including financial stocks. However, while increased interest rates will put pressure on banks in the short term, they will likely help banks in the long run. When the zero-risk interest rate is low, the banks can't lend money at extremely high rates. But when the zero-risk (or Treasury bond) interest rate rises, the banks can charge more for money, increasing their interest rate spreads and therefore their profitability. But in the short term, the banks may get caught lending money with a low spread as Treasuries move higher.
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The article Dow Shows Life After Last Week's Decline originally appeared on Fool.com.Fool contributor Matt Thalman owns shares of Bank of America and JPMorgan Chase & Co.. The Motley Fool owns shares of Bank of America and JPMorgan Chase. Check back Monday through Friday as Matt explains what caused the Dow's winners and losers of the day, and every Saturday for a weekly recap. Follow Matt on Twitter: @mthalman5513. 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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