How the Dow's Reacting to the U.S.-Japan Divide

On a relatively quiet day for the stock market, the Dow Jones Industrials (DJINDICES: ^DJI  ) having swung gently between gains and losses during the first hour of the trading day. As of 10:55 a.m. EDT the index is up 32 points. But beneath that apparently calm activity is a big battle between circumstances in the U.S. and conditions around the world.

Overnight, the Japanese stock market plunged another 6%, sending the Nikkei (NIKKEIINDICES: ^NI225  ) into an official bear market with a 20% drop in the past three weeks and reflecting uncertainty about the ability of the Bank of Japan to implement policies to stimulate the long-dormant Japanese economy. Meanwhile, the U.S. continues to see favorable signs of growth, with falling claims for unemployment and strength in retail sales boding well for conditions domestically.

What's interesting is how that tug-of-war is playing out among individual companies. Among the gainers in the Dow this morning is Caterpillar (NYSE: CAT  ) , which is up 1.1%. As I predicted earlier this week, Caterpillar followed through on its long streak of annual dividend increases with a 15% hike yesterday. Yet the move likely also reflects optimism about the U.S. economy, as Caterpillar retains a key domestic presence despite the importance of international markets like China. The stock has been stuck in the doldrums for a while now, so signs of life are a positive not just for Caterpillar investors but for the broader industrial sector.

Meanwhile, Coca-Cola (NYSE: KO  ) finds itself on the short end of the Dow stick, falling 1.5%. For Coke, growth has come almost entirely from international expansion, as the company faces domestic challenges that could continue to hold its business back for the foreseeable future. Moreover, with its "2020 Vision" strategic plan focusing on developing premium brands, it really needs international economic growth to continue. Lapses in the advance of middle-class consumers in emerging markets pose a threat to Coke's primary growth-driver.

What's clear, though, is that strategic moves at the individual-company level can still create value. Safeway (NYSE: SWY  ) has climbed almost 10% after it sold off its Canadian operations for about $5.7 billion. The move won't solve all of the grocery retailer's problems, especially as its low-margin business continues to face huge competition from traditional grocery rivals, as well as larger-scale retail and specialty grocery companies. Nevertheless, the move should help Safeway reduce debt and refocus its attention on fighting back against competitive pressure more effectively.

Coca-Cola's wide moat has helped provide its shareholders with superior gains in the past, but the company faces some new threats to its continued market dominance. The Motley Fool recently compiled a premium research report containing everything you need to know about Coca-Cola. If you own or are considering buying shares in the company, you'll want to click here now and get started!


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