Why China's Boosting the Dow This Morning

Ever since stocks started falling last month, many investors have wondered when the Federal Reserve might step in to provide additional support to the economy. This morning, investors discovered that they'd gotten the support they'd expected -- but from an unexpected source. Rather than the Fed, it was the People's Bank of China that stepped in, cutting its deposit and lending rates by a quarter-percent for the first time since 2008. The surprise sent stocks soaring, although less enthusiastic comments from Fed Chairman Ben Bernanke cut the gains in the Dow Jones Industrials (INDEX: ^DJI  ) to 66 points just after 10:45 a.m. EDT, and the Nasdaq Composite (INDEX: ^IXIC  ) actually lost ground. Nobel laureate Joseph Stiglitz joined George Soros in predicting a big blow-up in Europe, citing a failure of banks and governments there to take necessary action.

Caterpillar (NYSE: CAT  ) posted the biggest gains in the Dow early with an almost-2% rise, as a China-led economic stimulus could have a big impact on its construction and mining equipment business in the emerging-market nation. Yet it's important to remember that the whole reason why China has had to cut interest rates is its belief that growth is slowing, which suggests that Caterpillar's potential recovery won't happen overnight.

United Technologies (NYSE: UTX  ) also continued its winning ways from yesterday, rising almost 2%. The company needs economic strength to bolster its business both in the U.S. and abroad, so Chinese stimulus by itself won't be enough. Bernanke's comments may well signal that United Tech and its peers shouldn't count too much on monetary stimulus in the future.

Finally, Pfizer (NYSE: PFE  ) rose about three-quarters of a percent after announcing that it would spin off its animal health unit through an initial public offering, with full divestiture expected in mid-2013. The new company will be named Zoetis and should have global exposure, with the unit's 2011 sales weighing in at $4.2 billion. The move follows Pfizer's sale of its infant nutrition business and is part of Pfizer's previously announced plan to refocus its efforts on its core drug business.

Happy happy joy joy
China has the markets moving higher, but it's up to the U.S. to do its part to help give investors great returns. Find out which stocks our experts are the most bullish on in the Fool's special free report: "3 American Companies Set to Dominate the World." Just click right here to get your free copy now.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. You can follow him on Twitter @DanCaplinger. Motley Fool newsletter services have recommended buying shares of Pfizer. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1905872, ~/Articles/ArticleHandler.aspx, 10/31/2014 11:49:32 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement