Why Caterpillar Will Move the Dow Monday

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.

Given the huge declines that we've seen in the Dow Jones Industrials (DJINDICES:^DJI) during the past two days, it's not surprising that investors want to see evidence of how changing global economic conditions are having an impact on U.S. stocks. On Monday, investors will get some useful information on that front, as Caterpillar (NYSE:CAT) provides its insight on the state of the industrial economy worldwide, especially as it regards construction and mining.

Caterpillar's investor relations department has said that it will release its earnings results at 7:30 a.m. EST on Monday. The company will follow up with a conference call at 11 a.m. EST to discuss the results.

Source: Caterpillar.

The reason that Caterpillar is so important to the Dow right now is that the heavy-equipment giant has been a key catalyst in helping emerging-market nations foster the rapid growth that they've enjoyed during the past 15 years. Construction and infrastructure projects have transformed the landscape of many emerging economic powers, helping to make China the second-largest economy in the world, and bringing a number of other key markets into the forefront of the global economic stage. Even now, prospects for smaller emerging and frontier markets rely on their ability to support their overall economies by creating the infrastructure they need to encourage business investment, and Caterpillar equipment plays a pivotal role in making that happen.

Yet even today, Caterpillar gave a sense of just how disappointing its recent results have been. The company said that retail sales of machinery fell 9% during the fourth quarter, and the Asia-Pacific region was particularly weak, with sales falling 19%. Even with recent U.S. economic strength, North American sales edged down by 1%. Moreover, even Caterpillar's power-systems business posted a 6% decline, showing just how ugly conditions are right now for the company. That also bodes badly for fellow Dow component General Electric (NYSE:GE), which has grown its presence in the energy industry and has also pursued establishing a presence in building mining equipment, which has been hit hard by slumping commodities prices.

The Caterpillar earnings report will have ramifications well beyond its own industry, as its read on the strength of China and other emerging markets will act as a barometer of what businesses in other sectors can expect to see from their consumer and business customers there. Even as conditions in the U.S. look increasingly favorable, the threat of a global economic crisis could become clearer by looking at Caterpillar's results.