Capital Goods Drag Down the Dow

Capital-goods manufacturers were among the worst performers Tuesday, on a day that saw the Dow Jones Industrial Average down 0.8% after the International Monetary Fund revised its global economic growth projections downward. Manufacturers of building supplies and equipment traded strongly downward in Tuesday's session, reversing the year's upward momentum stemming from increased confidence over a housing recovery.

Building-materials supplier Owens Corning (NYSE: OC  ) lowered its earnings guidance significantly on Tuesday, from the $360 million to $420 million it anticipated in August to a range of only $280 million to $360 million. The company blamed low volumes of roofing products in the U.S. as well as weak demand for its composite materials, used in several industries. Shares fell more than 8%, and investors took Owens Corning's announcement as bad news for the entire industry, as other building-materials suppliers were also down sharply. Gypsum and drywall manufacturer USG (NYSE: USG  ) was particularly hard-hit, down 5.8%.

Homebuilders also pulled back Tuesday, with most down slightly after a strong yearlong rally. Lennar (NYSE: LEN  ) , the nation's largest homebuilder by market capitalization, was down 2% in Tuesday's trading. The company remains near a post-recession high, however, having gained nearly 90% for the year.

Construction-equipment manufacturer Terex (NYSE: TEX  ) was down nearly 4% on Tuesday, as investors reacted not only to Owens Corning's dour estimates but also to an analyst downgrade. JPMorgan Chase analysts cut Terex from "overweight" to "neutral," following a slew of similar downgrades in July. Terex makes heavy machinery for the construction business as well as for the mining, transportation, and energy industries.

Elsewhere in the industrials sector, automotive-component manufacturer BorgWarner (NYSE: BWA  ) slipped 4.3% after CEO Tim Mangenello delivered a similarly dour outlook on global demand in a televised interview Tuesday. "The economic mood of not just the country but globally has gotten a little bit more conservative and a little bit more nervous," he said on Bloomberg TV. Preparing for faltering demand for automobiles in Europe, Mangenello pointed out that about a quarter of BorgWarner's European workforce is temporary. Mangenello also warned that the company was prepared to cut U.S. jobs "if we have to," referring to the upcoming "fiscal cliff" of tax hikes and spending cuts that will occur if Congress doesn't act. Mangenello claimed that while politicians fail to take action, "people are sitting on cash" instead of investing.

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Fool contributor Daniel Ferry has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend BorgWarner. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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