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Dow Should Have Gone Much Higher

Saturday - 4/20/2013, 4:00am  ET

Despite trading down most of the day, and finishing slightly higher at 0.1%, the Dow Jones Industrial Average should have gone up much more. The index is price-weighted according to its components and, therefore, IBM holds a disproportionate effect over the index, contributing one-sixth of the overall weight. The tech giant fell 8.3% today after missing earnings last night; that alone dropped the Dow by more than 1%. Aside from IBM, however, the index was overwhelmingly positive. Twenty-four of the Dow's 30 stocks finished the day higher, and its peers, the S&P 500 and the Nasdaq, both finished up 0.9% and 1.2%, respectively.

Still, the market seemed bullish after a number of strong earnings reports after hours last night including Google and Microsoft.

The Dow was cooler than the other two indexes on two earnings disappointments this morning from GE , and McDonald's .

General Electric shares were off 4.1%, as the conglomerate posted adjusted earnings of $0.35, in line with estimates and up from $0.29 a year ago. Revenue was down slightly, from $35.2 billion, to $35 billion, but still ahead of estimates. However, poor results in its industrial segments shook investors, as the company said that profits in its industrial equipment and services divisions fell 6% and 11%, respectively. Weakness in Europe also weighed on the industrial giant, as revenue from across the Atlantic was down 17%.

Meanwhile, stock of the Golden Arches was off 2%, as same-store sales declined 1% in the quarter, and the fast-food chain said April numbers are tracking similarly. Comparable sales were down in all three of its major regions -- the U.S., Europe, and Asia-Pacific.  Earnings per share for the quarter moved up to $1.26 -- $0.01 below estimates -- and overall revenue rose slightly by 0.9%, to $6.61 billion, beating estimates of $6.59 billion.

For GE, the recent financial crisis struck a blow, but management took advantage of the market's dip to make strategic bets in energy. If you're a GE investor, you need to understand how these bets could drive this company to become the world's infrastructure leader. At the same time, you need to be aware of the threats to GE's portfolio. To help, we're offering comprehensive coverage for investors in a premium report on General Electric, in which our industrials analyst breaks down GE's multiple businesses. You'll find reasons to buy or sell GE today. To get started, click here now.

This article was originally published as Dow Should Have Gone Much Higheron

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