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China Takes a Bite out of Wall Street

By Travis Hoium - Apr 15, 2013 at 3:33PM

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Slow GDP growth in China has hit U.S. stocks today.

There's a lot of red ink on Wall Street today after China took a bite out of the market's enthusiasm. The world's second-largest economy said GDP rose 7.7% in the first quarter, slowing from 7.9% in Q4 and falling short of economists' 8% estimate. Growth in China has helped drive global demand as the U.S. and Europe fight off economic struggles, so investors are more than a little concerned about the news. The Dow Jones Industrial Average (^DJI 1.76%) sold off 1.19% as a result of the news, while the S&P 500 (^GSPC 2.47%) is down 1.73% today.

Caterpillar (CAT 1.95%) is taking the biggest hit on the Dow, crashing 3.1% today. The company relies on growth in emerging markets to grow sales, and China's GDP numbers will always affect the stock in the short term. A lot of this weakness is already priced into the stock, so it may not be bad for long-term investors. The company reports earnings next Monday, and estimates call for $1.44 per share in earnings, down from $2.37 a year ago.

If you thought stocks were getting hit hard today, you need to take a look at the commodities market. Gold is down 9.6% as I write, silver has fallen 12.9%, and oil is down 2.7% to less than $89 per barrel. This drop has hit oil giants Chevron (CVX 0.96%) and ExxonMobil (XOM 0.98%), who are down 2.5% and 2.3%, respectively. You can see in the chart below that a drop in oil's price may impact earnings at both companies, but it'll have to be a lot more severe than $2 per barrel.

XOM Net Income TTM Chart

XOM Net Income TTM data by YCharts.

Economic weakness in the U.S. and Europe and a slowdown in China may lead to a drop in the price of oil, but it will only be temporary. Investors with a long-term view can pick up highly profitable companies like ExxonMobil and Chevron on these drops, because these supermajors can generate a strong profit no matter what oil does.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$33,212.96 (1.76%) $575.77
Caterpillar Inc. Stock Quote
Caterpillar Inc.
CAT
$217.14 (1.95%) $4.15
Exxon Mobil Corporation Stock Quote
Exxon Mobil Corporation
XOM
$97.59 (0.98%) $0.95
Chevron Corporation Stock Quote
Chevron Corporation
CVX
$178.28 (0.96%) $1.69
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$4,158.24 (2.47%) $100.40

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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