Why the Dow Jones Is Tumbling Today

Numerous bad forecasts are weighing on the DJIA today.

May 20, 2014 at 1:30PM
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The Dow Jones Industrial Average (DJINDICES:^DJI) is down 145 points as of 1:20 p.m. EDT after component stock Caterpillar (NYSE:CAT) and a number of other companies throughout the market reported disappointing earnings or forecasts. Meanwhile, the S&P 500 (SNPINDEX:^GSPC) is down 13 points to 1,872.

It's a sea of red on the stock market today:

G

Source: Finviz.com.

The main culprit among Dow stocks is Caterpillar, down 2.9%. Caterpillar released its three-month rolling sales report last night after the market close. The report compares three-month rolling periods to the same time last year, and the results look worrisome:

G

Source: Caterpillar.

Total machine sales dropped 13% versus the year-ago period -- worse than March's 12% drop. Asia-Pacific total machine sales dropped 25% versus the year-ago period, declining still faster after March's 20% drop. Caterpillar is seen as a bellwether for the global economy, as it supplies the economically sensitive mining and construction industries. It's slowdown in sales is seen as a leading indicator of the economy and bodes ill for global growth.

Around the rest of the market there were also poor earnings reports, particularly in the retail sector. Staples missed analyst expectations and forecast a drop in sales for next quarter, and the stock has dropped 13% in response. Among consumer retail stocks, Urban Outfitters and TJX Companies are down 8% and 7%, respectively, after missing expectations. Dicks Sporting Goods is down 17% after missing expectations. Many companies have high expectations priced into them and are getting large haircuts when they miss. It's not all bad news, however.

Today's Dow leader
Today's Dow leader is Home Depot (NYSE:HD), up 2.3% after the company missed analyst expectations for earnings but projected that things will get better in the second quarter. Earnings per share rose to $1, beating analyst expectations of $0.99 -- but they missed if you don't include a $0.04 gain from its spinoff of Home Depot Supply. The company raised its forecast for earnings to $4.42 per share, in line with analyst expectations.

Revenue was up 3.1% to $19.7 billion, below analyst expectations of $20 billion. CFO Carol Tome highlighted the harsh winter that made U.S. economic growth slow in the first quarter, but on the earnings call, she added: "We believe that most of the sales lost to 'snow on the ground' in the first quarter will be realized in the second quarter. Further, May sales are robust, so today, we are affirming the sales guidance."

Warren Buffett just bought nearly 9 million shares of this company
Imagine a company that rents a very specific and valuable piece of machinery for $41,000 -- per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click here to discover more about this industry-leading stock and join Buffett in his quest for a veritable landslide of profits!

Dan Dzombak has no position in any stocks mentioned. The Motley Fool recommends Home Depot. 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.

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