If all you look at today is the 13-point loss in the Dow Jones Industrials (DJINDICES:^DJI), you might make the mistaken assumption that the stock market had a calm day. But, fallout from yesterday's release of Federal Reserve minutes, and testimony from Ben Bernanke, crossed the Pacific overnight and, in combination with news from China indicating further slowing in its manufacturing sector, the Japanese stock market plunged 7%, initially throwing the U.S. market for a loop, as well. By the end of the day, however, U.S. stocks largely recovered, in another example of the stubborn refusal lately for markets in America to stay down for long.
As you'd expect, stocks with the most exposure to China were among the hardest-hit. Both Alcoa and Caterpillar (NYSE:CAT) suffered declines today, as weakness in Chinese manufacturing hits both companies directly. In particular, Caterpillar's failure to participate in the Dow's rally throughout much of 2013 points to a growing disconnect across various sectors of the U.S. economy, as a strong dollar makes U.S. exporters less competitive, and weaker demand overseas weighs on sources of growth that Caterpillar and its peers have relied on for years during America's recession and sluggish economic recovery. With Caterpillar having reported a drop of 9% in April sales, further weakness could delay any rebound for the stock even longer.
Microsoft (NASDAQ:MSFT) also gave up ground, falling 1.3%, as investors appeared to question whether the company's new Xbox One could live up to its initial hype. Despite Microsoft's relative success with its gaming division, the unit contributes a relatively small part of the company's overall revenue. Despite the value of establishing an ecosystem on which it can base other offerings, Microsoft can't afford to let the new Xbox distract it from the more important tasks of establishing growth in mobile, while finding ways to defend and expand the reach of its key Office and operating system software.
Finally, outside the Dow, Cirrus Logic (NASDAQ:CRUS) plunged almost 20% after warning that competition and pricing pressure in the smartphone arena would force its long-term gross margins down from their current level of 50% to 52%, down to a range surrounding 45%. Given the company's status as a major iPhone supplier, analysts tried to draw conclusions about smartphone manufacturers' prospects, as well, but it's unclear whether the comments point to the iPhone's own sales prospects or, rather, strategic decisions among phone makers to consider other sources of chips like the ones Cirrus makes. Either way, the drop shows how vulnerable a company is when it relies on a single customer for the vast bulk of its business.
Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool owns shares of Cirrus Logic and Microsoft. 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.