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Why China Sent the Dow Higher but Left Caterpillar and General Electric Out

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The Dow Jones Industrial Average (DJINDICES: ^DJI  ) has regained some of the ground it lost yesterday, rising 57 points as of 10:50 a.m. EDT. Yet even though many analysts pointed to encouraging news about the Chinese economy as driving the Dow higher, two of the stocks you'd expect to see gain the most from China's recovery, Caterpillar (NYSE: CAT  ) and General Electric (NYSE: GE  ) , didn't post significant gains compared to the Dow.

The optimism over China came from HSBC's flash Purchasing Managers' Index, which rose to 50.9 from 50.2 last month and continued to signal expansion in the manufacturing sector. New orders drove growth in the overall index, reaching their highest level since early this year.

But Caterpillar stock has stalled this morning as the heavy-equipment manufacturer continues to consolidate after yesterday's disappointing earnings report. In particular, the timing of its acquisition of mining-equipment maker Bucyrus three years ago has turned out to be horrible in hindsight, as falling commodities prices have hit the mining industry and forced miners to delay capital-equipment purchases. A pick-up in general manufacturing activity might help lift prices of certain commodities higher, but it won't necessarily translate to greater activity in construction and infrastructure work. Those are the areas that Caterpillar most needs to see do well in order to get earnings moving in the right direction again, and until that part of the Chinese economy recovers, Caterpillar will have a hard time bouncing back.

General Electric, meanwhile, is also flatlining this morning. GE's more wide-ranging conglomerate business covers a far greater swath of industries than Caterpillar, although General Electric has identified the mining-equipment market as a potential driver of future growth. Unlike Caterpillar's, GE's stock has performed quite well recently, as its energy and aviation businesses have pulled a lot of the conglomerate's weight over the past year. A Chinese recovery would be one mark of success for General Electric, but GE also needs to see that strength translate to a broader global recovery that lifts key areas like Europe and the U.S. as well.

Is China still important for the U.S.?
A new technology is changing the way companies manufacture goods, and it could render Chinese manufacturing data unimportant to the health of the global economy. Read all about the biggest industry disrupters since the personal computer in 3 Stocks to Own for the New Industrial Revolution. Just click here to learn more.


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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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Related Tickers

7/2/2015 5:20 PM
^DJI $17730.11 Down -27.80 +0.00%
DOW JONES INDUSTRI… CAPS Rating: No stars
CAT $84.38 Up +0.43 +0.00%
Caterpillar, Inc. CAPS Rating: ****
GE $26.78 Up +0.12 +0.00%
General Electric C… CAPS Rating: ****

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