Why the Dow's Exploding Higher This Morning

Everyone's been concerned about the strength of the U.S. economy and its potential impact on investors. Today, though, those concerns seem unfounded, as two key indicators of economic activity gave positive results. An index of manufacturing activity at U.S. factories rose above the key 50 level, indicating expansion for the first time in four months as well as strength in employment. Moreover, European markets rose sharply as confidence in the Eurozone's ability to weather its financial storms seems to be improving. The Dow Jones Industrials (INDEX: ^DJI  ) were up more than 150 points by 10:45 a.m. EDT.

Among Dow stocks, the only loser was Microsoft (Nasdaq: MSFT  ) , which fell about three-quarters of a percent. The software giant lost its No. 2 spot among tech stocks to Google, which has seen its stock soar on hopes that the search leader will be able to cash in on mobile ads as efficiently as it has with its Web-based search engine. As long as Microsoft remains tethered to traditional PCs, it will struggle to keep up with faster-growing companies focusing their efforts on increasingly popular mobile devices.

On the plus side, Cisco Systems (Nasdaq: CSCO  ) gained two-thirds of a percent. Fool analyst Austin Smith highlighted Cisco yesterday, noting that while many investors see huge potential upside from the networking behemoth, Cisco still has to overcome reduced investment in information technology among customers. Higher dividends make investors happy, but they could also indicate that Cisco has run out of ideas to invest cash profitably within its own business.

Finally, Caterpillar (NYSE: CAT  ) rose minimally, a very weak showing for a day of positive economic news. With the company's recent cut in earnings forecasts three years down the road, Fool analyst Brendan Byrnes pointed to increased competition from existing and new players. With General Electric (NYSE: GE  ) looking to get into the mining equipment industry, Caterpillar can't count on being able to dominate the mining space going forward.

Ride the wave
Starting off the quarter on a high note is pleasant for investors, but don't lose sight of long-term prospects. For Microsoft, a weak PC market may be holding the company back, but it hasn't given up on its growth initiatives. Find out whether they'll succeed or fail in the Fool's premium report on Microsoft, which provides our latest analysis along with a year's worth of free updates to take you well into the software company's future. Click here and start reading today.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. You can follow him on Twitter @DanCaplinger. The Motley Fool owns shares of Microsoft and Cisco Systems. Motley Fool newsletter services have recommended buying shares of and creating a synthetic covered call position in Microsoft. 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.


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