Morning Dow Report: Caterpillar and Merck Soar, But Will the Dow Stay Higher?

After Friday's drop of more than 300 points, the Dow hasn't been able to sustain much of a rebound despite strong upward share-price moves for Caterpillar and Merck. Find out why.

Jan 27, 2014 at 11:00AM

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Throughout the bull market over the past five years, short-term declines in the Dow Jones Industrials (DJINDICES:^DJI) have almost always led to nearly immediate rebounds as investors rushed in to buy momentary dips. But at least for today, the Dow isn't using that familiar playbook, trading down for a brief period this morning and up just 24 points as of 11 a.m. EST. Sharp gains from Caterpillar (NYSE:CAT) and Merck (NYSE:MRK) were essential to keeping the Dow in the green, given that the S&P 500 and Nasdaq are down on the day.

Caterpillar's earnings report provided key upward momentum for its stock, which soared 5.4%. On its face, the report reflected the tough time Caterpillar has had with its heavy-machinery business, as revenue dropped 10%. Yet net income was much higher than investors had expected, with the company managing to produce earnings growth even after adjusting for one-time items that hurt year-ago earnings figures. The company announced a new $10 billion stock-repurchase program, and CEO Doug Oberhelman said Caterpillar already sees some signs of an improving global economy despite an overall sense that 2014 will be fairly similar to the tough 2013 it had.

Merck jumped 3% as analysts at Morgan Stanley upgraded the drugmaker's stock. The analysts cited the company's efforts to keep costs low as bearing fruit, which has been important in light of the revenue declines that Merck has suffered as a result of its patent-cliff exposure. Moreover, with promising treatments on the cancer front, Merck could produce earnings growth that might make the stock's valuation look inexpensive in hindsight.

Yet from a broader perspective, the big question the Dow faces is whether investors will allow the current pullback to become more than a standard buy-the-dip move. Much will depend on the Federal Reserve this week, as it considers whether to continue to reduce its quantitative easing bond purchases or suspend its tapering program in light of global economic pressures. Nervousness about the financial impacts of such a move likely contributed to the declines in Visa (NYSE:V) and Goldman Sachs (NYSE:GS) today, and they could continue to pose a threat until investors get more comfortable with the direction of monetary policy in 2014 and beyond.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Goldman Sachs and Visa. The Motley Fool owns shares of Visa. 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 Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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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