Why the Dow Is Trending Down

For the fourth day this week, the Dow Jones Industrial Average (INDEX: ^DJI  ) has hardly budged. It's currently down nine points in intraday trading, equating to a nominal loss of 0.07%.

The indirection stems from the release of multiple contradictory economic reports.

The results of a survey published this morning by the Federal Reserve Bank of Philadelphia, known as the Business Outlook Survey, show that domestic manufacturing conditions, while marginally better than last month, continue to contract. According to the report:

The September Business Outlook Survey suggests that activity among the region's manufacturing sector has steadied, following several months of reported declines. Firms reported declines in shipments and employment, however. Prices of firms' manufactured goods were moderately higher this month, although output prices remained steady. The survey's future indexes recorded notable increases this month, suggesting that firms are more optimistic regarding growth over the next six months. However, firms reported that they expect continued weakness for the remainder of this year.

Data out of both Asia and Europe provided further cause for concern. According to Bloomberg, a report issued by HSBC and Markit shows that Chinese manufacturing activity continues to suffer from the problems in the West. The report's September reading of 47.8 is notably an improvement over August's 47.6, but anything below 50 is indicative of contraction. Similarly, a composite index based on a survey of purchasing managers in Europe dropped to 45.9, a new 39-month low. As with the report above, a reading below 50 suggests a decline in business activity.

Finally, data released by the U.S. Department of Labor showed that weekly unemployment claims for the week of Sept. 8 to Sept. 15 fell to 382,000. This was 3,000 fewer than were filed in the prior week, but as my colleague Dan Dzombak noted, the reading still came in higher than analysts' expectations for only 375,000 claims.

Today's winners and losers
Given the disappointing data on global manufacturing, it should be no surprise that aluminum producer Alcoa (NYSE: AA  ) and heavy-machinery manufacturer Caterpillar (NYSE: CAT  ) are leading the way down, falling by 2.3% and 1.9%, respectively, in intraday trading.

With regard to Caterpillar, our industrial analyst Brendan Byrnes recently noted in an in-depth report on the company: "Caterpillar is a cyclical stock that's vulnerable to commodity prices, business confidence, and infrastructure and construction spending. With the continuing mess in Europe and slowing growth in key economies like China, investors are punishing Caterpillar's stock mainly due to the uncertain future of the global economy."

On the other side of the equation, Kraft (Nasdaq: KFT  ) and Microsoft (Nasdaq: MSFT  ) are the day's biggest gainers, trading up by 1.6% and 1.1%, respectively. While the former's performance is likely due to its impending split-up, investors in the latter are responding approvingly to the company's dividend hike. As our in-depth report on the software manufacturer puts it, "Microsoft is a money-making machine."

For our popular free report on three Dow stocks that every dividend investor should own, simply click here now.

Fool contributor John Maxfield does not have a financial interest in any of the companies mentioned above. The Motley Fool owns shares of Microsoft. Motley Fool newsletter services have recommended buying shares of Microsoft. Motley Fool newsletter services have recommended creating a synthetic covered call position in Microsoft. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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