Caterpillar Drags The Market - Markets This Morning

  • Bad news from equipment maker Caterpillar sent stocks reeling.
  • A comeback in the afternoon failed to get the market back to even.
  • Commodities still the problem.

The bad news for the market came in just as the market opened, with Caterpillar (NYSE:CAT) announcing it will cut up to 10,000 jobs over the next three years as its revenues continue to fall.

This sent stocks rocketing downward until about 11 AM, with the Dow Jones Industrial Average (INDEX:INDU) down 263 points. But then the rally started. The market closed before it could get all the way back to even, however, with the Dow Jones (of which Caterpillar is a member) finishing down .48%, or 78.10, to 16,201, the Nasdaq Composite (INDEX:COMPX) falling .38%, or 18.27, to finish at 4,734, and the S&P 500 (INDEX:SPAL) falling .34%, or 6.53, to finish at 1,923.

The major averages are now down about 3% since the Federal Reserve announced its decision not to raise interest rates. The VIX, which measures volatility, rose 5.83% or 1.29 to finish at 23.40.

The Commodity Recession

Not everything is down. Consumer-oriented stocks are doing well. Domestic-oriented stocks like restaurants are doing well. The problem comes down to one word, commodities, caused mainly by the slowdown in China and its knock-on effects in developing economies.

This was exemplified by the numbers from Nike (NYSE:NKE), which beat on earnings by 15 cents and on revenue by $200 million, and shot up $5.28/share right away in after-hours trading, to over $120/share. Like Under Armour (NYSE:UA), it is benefiting from a trend of people to dress down and wear athletic-leisure or “ath-leisure” clothes just about everywhere.

Domestic restaurants and retailers are also continuing to do well. Darden Restaurants (NYSE:DRI), which owns restaurant chains like Olive Garden, was up 35 cents or .49% to $71.46. Target (NYSE:TGT), the discount superstore chain that competes with Walmart (NYSE:WMT), rose 32 cents or .41% to $79.06.

Companies like Caterpillar, whose equipment is used in mining and wound up down 6.28%, or $4.11, to close at $65.79 and Transocean (NYSE:RIG), whose equipment is used to drill for oil, are thus taking it on the chin. Transocean fell another 4.76% yesterday, 65 cents, to finish at $13.01.

While commodities did OK in yesterday’s trade  -- West Texas Intermediate oil up 14 cents, copper falling just .05 of a cent to $2.30, and wheat finishing unchanged at 497.25 – many are still at prices well below production costs.

Domestic Yes, International No

The results demonstrated once again how U.S. centric the world is becoming, because most international markets fell. Japan’s Nikkei started the day by falling 1.92%, then Hong Kong’s Hang Seng lost .98%, negating the Shanghai gain of .85% and a Sensex gain of .16%.

Then Europe opened and the bad news continued. The German DAX, still suffering the fallout of the Volkswagen (OTC:VLKAY) scandal, was down 1.92%. The French CAC-40 fell 1.93%. The English FTSE was down 1.17%.

An Apple Day for Tech

In tech, it was an Apple-centric day, with Apple (NASDAQ:AAPL) itself rising 68 cents, or .59%, to finish at $115. One of its suppliers, Jabil Circuit (NYSE:JBL), shot up over 8% in after-hours trading, following a 2.25% rise during the day, after exceeding earnings expectations for its fiscal 2015 and raising them for 2016, with earnings of $103.2 million, 53 cents per share, on revenue of $4.7 billion. 

Other tech stocks didn’t do nearly as well. Amazon (NASDAQ:AMZN) lost $2.32, .43%, to finish at $533.75. Yahoo (NASDAQ:YHOO) lost 40 cents or 1.34% to @29.34. Tech gainers were up modestly like Microsoft (NASDAQ:MSFT), up four cents or .09% to finish at $43.91, and Cisco (NASDAQ:CSCO), up 13% or .51% to $25.41.

So What Happens Now?

The U.S. economy continues to move forward, with rising demand reaching rising supplies, but that’s not true in the rest of the world, especially countries which make and use basic commodities, where prices continue to fall or sit below replacement costs.

What’s needed for global growth to gain, again, is for someone to buy, not just offer money in the form of quantitative easing or some other policy but with real orders. Until that happens, most shares around the world will struggle to find firm footing.

For a quick roundup of key news and events before the bell, check the daily news section - Markets This Morning.

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