Good News for Some Dow Components Is Bad News for Others
Sep 10th 2013 1:03PM
Updated Sep 10th 2013 1:04PM
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.
As the prospect of U.S. intervention in Syria looks less and less imminent, the major U.S. indexes are all moving higher. As of 12:40 p.m. EDT the Dow Jones Industrial Average has risen 94 points, or 0.62%, while the S&P 500 is up 0.54% and the Nasdaq is 0.41% higher.
Only a few losers can be found within the Dow at this time. One of the larger drags on the index is ExxonMobil , which has fallen 0.6%. The tensions in the Middle East are easing somewhat after Russia offered a solution to the Syrian chemical-weapons problem. Russian President Vladamir Putin has proposed that Syria give up its chemical weapons in order to avoid a U.S.-led strike. For now, this seems to be the best option for all parties involved. That has caused the price of oil to pull back substantially today, with crude falling 2.3% and unleaded gasoline declining 1.69%. That in turn is causing the Dow's oil components to slip.
Two other losers within the Dow are Hewlett-Packard , down 0.7%, and Alcoa, which is off by 0.3%. The announcement this morning that HP, Bank of America , and Alcoa will all be removed from the Dow and replaced by Goldman Sachs, Nike, and Visa may be affecting the struggling computer company. While Bank of America is a major financial institution that many consider somewhat stable or even undervalued at its current price when considering what the future may hold for the company, HP and Alcoa don't quite fit that same mold. HP is in the midst of a major turnaround, and Alcoa has been battered by falling aluminum prices. Furthermore, neither company currently operates in an industry that analysts believe will see massive growth in the future as PC sales are knocked by the rise of mobile devices and aluminum stockpiles build around the world.
While my colleague Alex Dumortier doesn't believe the Dow's shuffle will affect these stocks, I disagree. As index funds and other large institutions will have to rebalance their own holdings due to the restrictions imposed upon them based on their rules and regulations, Bank of America may still present value to investors with limited risk, while HP and Alcoa may not. And that could put more selling pressure on the two as the rebalancing occurs. Bank of America is up 1.2% at the time of writing.
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The article Good News for Some Dow Components Is Bad News for Others originally appeared on Fool.com.Fool contributor Matt Thalman owns shares of Bank of America. 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 Bank of America, Chevron, Goldman Sachs, Nike, and Visa. The Motley Fool owns shares of Bank of America, Nike, and Visa. 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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