The Nasdaq Composite index was down for the third consecutive day on Friday, while the other two major stock indices found their way back to positive territory. After dropping 1.46% on Wednesday and 77 basis points (0.77%) on Thursday, the Nasdaq Composite lost another 55 basis points (0.55%) on Friday, closing at 2,689. Nevertheless, The Dow Jones Industrial Average picked up 49 points on Friday to close at 11,871 for a gain of 41 basis points (0.41 percent). The S&P 500 rose by 24 basis points (0.24 percent) to finish at 1,283.
John Prestbo wrote a timely article for MarketWatch on Friday. After this week’s brief sell-off, it could be useful to remember Prestbo’s explanation of the difference between the performance of the S&P 500 as opposed to that of the Dow during market declines:
In down markets, the Dow tends to do better for a couple of reasons. First, the outflow of money from the market hurts smaller stocks hardest. A million dollars exiting a $10 billion stock deflates its price more than that of a $100 billion stock.
Second, down markets enhance investors’ appreciation of dividends. Everything else being equal, investors will tend to hold on to the dividend payers, thus limiting the drain on those stocks’ capitalization.
Miami-based corporations had a mixed day on Friday. Royal Caribbean (RCL) had the best luck, rising by 1.56% to close at 48.22. Carnival Cruise Lines (CCL) followed in its wake, gaining 20 basis points (0.20%) to finish at 46.12. Ryder System (R) lost 50 basis points (0.50%) to close at 49.49. Lennar (LEN) had the worst luck, dropping by 1.86% to end the day at 19.47.
Our “thought for the day” comes from Michael Kahn of Barron’s who is voicing a concern similar to what I have been emphasizing in these “thoughts for the day” and on my blog for the past two weeks. Kahn’s article, “Market in Danger as Bad News Piles Up” included this comment:
Strong markets can brush away one-off bombs, but when enough are dropped things can become problematic. The number of severe markdowns in several sectors this week appears to me to be nearing the threshold. From semiconductor maker Cree (CREE) nose-diving Tuesday on a poor outlook to fertilizer stock Mosaic (MOS) in a two-day skid on divestiture news, the market’s reactions have been brutal.
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For now, the major indexes are still holding the bears at bay. Unless the bombs stop falling at their present rate, it might be time for the bulls to curb their enthusiasm.
The following companies will be playing “beat the number” on Monday with their quarterly earnings reports: Albemarle (ALB), American Express (AXP), Amgen (AMGN), Crane (CR), CSX Corp (CSX), Ethan Allen (ETH), Halliburton (HAL), McDonald’s (MCD) and Texas Instruments (TXN). Good luck!