Caterpillar Grinds its Gears as the Dow Loses 100 Points

Airline stocks take a big hit as fuel prices spike behind Iraqi instability.

Jun 12, 2014 at 2:30PM
Daily Fool

The market took a big hit yesterday and has only seen more of the same today, with the Dow Jones Industrial Average (DJINDICES:^DJI) down 11 points as of 2:35 p.m. EDT and all but five blue-chip stocks in the red. Caterpillar (NYSE:CAT) shed 1.8% to drop to the bottom of the Dow, but airlines have suffered more than any industry, with Delta Air Lines (NYSE:DAL), Southwest Airlines (NYSE:LUV), and other notable stocks falling amid the latest turmoil in the Middle East. Let's catch up on what you need to know.

Will retail turn it around?
The retail sector kicked things off today on a downbeat note, a disappointment for a U.S. economy in need of good news after a GDP contraction in the first quarter. The Commerce Department reported that retail sales picked up slightly in May -- although below April's gains -- but the growth was driven almost entirely by a 1.4% hike in demand for cars and trucks. Retail sales gained just 0.1% when transportation sales were excluded, and staple industries such as groceries and department stores slid in May. Economists still believe the U.S. economy will turn around this summer after a poor start to the year, but retail sales will need to pick up in the near future to drive American consumer spending, which accounts for roughly two-thirds of GDP.


A Caterpillar loader in Iraq. Source: Wikimedia Commons.

Caterpillar this week raised its dividend by 17%, bumping its overall yield to around 2.6%. While the heavy-equipment maker's stock has risen sharply this year, the company is suffering through a tough downturn in sales in 2014.

Global retail machinery sales declined by 13% year over year in the three months ending in April, according to the company, and ongoing weakness in the mining sector has slammed Caterpillar's performance. Still, in the long run Caterpillar is well positioned atop this sector to capitalize on the ongoing economic recovery; for now, the increased dividend should help investors feel stronger about the stock's rise this year.

Airline stocks have been huge risers in 2014, but that's not helping this industry today. The Iraqi government appears to be teetering in the face of insurgent takeovers of several major cities; fuel prices have soared, particularly after Kurdish fighters occupied Kirkuk, an oil city in Iraq's north. The situation has sent Delta Air Lines' stock down by 6.4% as of 2:35 p.m. EDT, while Southwest's stock plunged by 5.1%. Fuel prices are as volatile as any trend on the market, and it's not surprising to see these stocks fluctuate today given that fuel makes up one of the airline industry's biggest costs. However, the economic recovery has boosted hopes that airline traffic will grow into the future, and Delta and Southwest in particular have capitalized by topping rivals in traffic to start the year. Investors can't predict where and when volatility in fuel prices will hit, but keying in on strong businesses and stocks -- and Delta and Southwest's dividends sure don't hurt -- is always pivotal.

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Dan Carroll has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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Jun 12, 2015 at 5:01PM

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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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