Markets Rise on a Weak GDP Number. What's Going On?
Jun 26th 2013 9:00PM
Updated Jun 26th 2013 9:02PM
This morning, the release of the final revision to the first-quarter GDP number was seen as a positive thing for equities, despite the GDP number representing slower than previously estimated economic growth in the U.S. during the first three months of 2013. A previous GDP report indicated that the economy grew at a rate of 2.4% in the first quarter, but that was revised downward to growth of a mere 1.8%. A slow economy would typically mean doom and gloom for Wall Street, as businesses would be expected to report weak quarterly results. But as the closing bell rang today, the Dow Jones Industrial Average was up 149 points, or 1.02%, and now sits at 14,910.
So the reason for the rise today is that this poor economic data will likely push the Federal Reserve's tapering of bond-buying back. The Fed had stated that if the economy continues to move forward and grow at a reasonable rate, it would start slowing its bond-buying program toward the end of 2013. Now that we all know the economy isn't as strong as what it appeared to be, the Fed may need to adjust its date for tapering, which is what equity investors want to see happen.
The Dow's triple-digit move higher allowed all but three of its components to move higher today. The three losers were IBM , Alcoa, and Caterpillar. This afternoon I discussed why Alcoa and Caterpillar were moving lower, now let's take a look at IBM.
IBM lost 0.06% today as the other Dow technology stocks all moved higher by more than half of a percent. The company has long been a stalwart in the technology industry with its massive server business and IT support units. But the top dog may be losing some of its dominance as we see other technology-focused companies move onto its turf. Hewlett-Packard, Microsoft, and Cisco, to mention a few, have all made big moves into the server and cloud computing business and ramped up their own IT support staffs. We have long thought of IBM as a slow-moving giant, which it rightfully has gained that image, but if it can't soon quickly begin moving to fight off the invaders, it may soon stumble and fall.
Outside the Dow, we once again saw some big moves lower from the coal stocks. Shares of Peabody Energy fell another 3.26%, while Consol Energy slid another 2.97%. Both companies are big players in mining coal and with the slowing Chinese economy, which is a huge customer for the industry and Obama's recent comments on climate control, the stocks have been bounded. While many experts had been expecting the president to make a stand against coal-fired power plants, a speech he gave on Tuesday was the first time we heard a plan to slow the carbon output caused by burning coal in electric power plants. Obama is aiming to put further restrictions on coal-fired power plants by forcing them to reduce their carbon emissions, a move that most would argue will cost more than it is worth and essentially force utility companies to shut down the plant or convert it to operate on another form of fuel. If his plan goes into effect, the move will surely hurt the coal industry as demand for the resource will take a nosedive.
Another big loser was the Apollo Group , which lost 10.27% of its value today. The company announced earnings yesterday after the market closed, and although it beat the Street's estimates for adjusted profit, its revenue misses expectations. For the quarter, revenue was down 16% as enrollment for the company's for-profit education unit, The University of Phoenix, fell 17% to 287,500 students. Apollo also announced that it expects revenue to come in at $3.65 billion to $3.7 billion for the full 2013 year while analysts had pinned the number to be higher at $3.71 billion.
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The article Markets Rise on a Weak GDP Number. What's Going On? originally appeared on Fool.com.Fool contributor Matt Thalman owns shares of Microsoft. 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 . The Motley Fool recommends Cisco Systems and owns shares of IBM 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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