The stock market started this week off the same way it did last week — with a pullback stemming largely from earnings-related announcements. As of 10:50 a.m. EDT, the Dow Jones Industrials has fallen by 59 points, or 0.4%, while other major benchmarks are also moderately lower. Yet behind the scenes, another piece of discouraging news could have an even bigger impact on the Dow — not just today, but in the long term as well.
What did come as a shock for many was the decline in existing-home sales in March. The Home Depot, Inc. (NYSE:HD) fell 0.3% on the news, given its sensitivity to the health of the housing market in particular. The major threat, though, is that many investors have pointed to the strength of housing as justifying much of the market’s recent rally. The Home Depot, Inc. (NYSE:HD) in particular sports a high earnings multiple of nearly 25. If housing’s rebound proves once again to be short-lived, as similar recoveries have in past years, then the disappointment could spread not only among housing-related companies, but across the entire stock market.
Elsewhere in the Dow, Microsoft Corporation (NASDAQ:MSFT) has soared 4% after an activist investor reportedly accumulated a $2 billion position in the company’s stock. With the software giant having long struggled to navigate changing tech trends, investors have grown increasingly impatient with Microsoft Corporation (NASDAQ:MSFT)’s progress. Yet even as shareholders applauded the move, having to deal with an activist may prove a further distraction for Microsoft, and unless it results in solid strategic ideas that produce results, the entire episode may simply prove to be another in a long line of disappointments.
The article This Threat Is Holding the Dow Back originally appeared on Fool.com.
Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Home Depot. The Motley Fool owns shares of Microsoft.
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