China's Potential Impact on the Decrease of the Dow Jones Industrial Average
The Dow Jones Industrial Average (DJIA) is currently holding steady above 14,000, but the index has shed six points, or 0.04%. This slight dip comes amidst a mixed bag of fortunes for the companies listed on the DJIA.
One of the notable losers today is Caterpillar Inc., a significant player in the construction and mining machinery industry. Caterpillar leads all Dow laggards lower, down 2.3%. The company, primarily known for its construction equipment sector, could be impacted by a potential China slowdown. China announced a plan to curb swelling housing prices, enforcing 20% capital-gains taxes on sales of existing homes and introducing restrictions to purchasing new properties. These measures could seriously impact revenues, particularly at materials firms such as Alcoa and leading steelmaking companies. Alcoa has lost more than 14% over the past year and is struggling to navigate the post-sequestration world.
However, not all news is gloomy for the DJIA. Retail stocks are keeping the Dow from succumbing to the industrial sector's pain. Wal-Mart, despite facing challenges with its leadership lamenting the "total disaster" of February sales, experienced a good day today and did not significantly contribute to the Dow's dip. Wal-Mart's performance is not solely reflective of the Dow's performance.
On the other hand, Home Depot, a top pick for the Dow recently, gained more than 45% over the past year as the U.S. housing market rebounds. If housing continues to gain momentum, expect Home Depot to keep on rising with it. Home Depot got a boost early last week after reporting expectations that topped projections, with the rebuilding efforts after Hurricane Sandy helping to drive sales.
Caterpillar's competitive advantages, including quality products, extensive service network, and unparalleled brand strength, may help it weather the storm. However, with China's moves potentially affecting revenues, the company's future remains uncertain.
The Motley Fool recommends Home Depot. The Motley Fool has a disclosure policy. Fool contributor Dan Carroll has no position in any stocks mentioned. The head of the Walmart Foundation, Syvlia Matthews Burwell, has been nominated by President Obama to lead the White House's Office of Management and Budget.
Federal budget cuts accompanying sequestration are impacting industrial stocks today. If consumer spending remains subdued as the payroll tax hike squeezes American budgets, Wal-Mart could be headed for more trouble.
In conclusion, the Dow Jones Industrial Average is facing a mix of challenges and opportunities. While the industrial sector is struggling, particularly with the impact of China's housing measures, retail stocks such as Home Depot are keeping the Dow afloat. The future remains uncertain, but with resilience and adaptability, companies like Caterpillar may find a way to navigate these turbulent waters.
