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Caterpillar and United Technologies Bring the Dow Back to Life

By Travis Hoium – Jan 27, 2014 at 3:30PM

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The Dow Jones Industrial Average is starting the week on the right foot with help from Caterpillar and United Technologies.

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

This week is already starting on a better foot than last, with the Dow Jones Industrial Average (^DJI) trading a scant 0.15% higher at 3:30 p.m. EST. Of course, it's not without drama after the market started off higher, sank at midday, and moved back into the green, so there's definitely not any conviction despite some very strong performers today.

Caterpillar (CAT 4.91%) continues a trend of strong earnings reports that do little to pull the market as a whole higher. Fourth-quarter revenue fell 12% to $14.4 billion, but the heavy equipment maker still pulled out a 44% jump in earnings per share to $1.54.  

That's better than the $13.4 billion in revenue and $1.27 per share in profit analysts expected, but also displays weakness in demand for mining equipment that was hot in 2012. While investors like the report today, and have pushed shares 5.7% higher, this is still a highly cyclical business and revenue could fall again in 2014 if China's economy continues to slow. Management expects flat revenue this year, so keep an eye on how things play out for this volatile company.  

United Technologies (RTX 2.91%) is up 2.1% after reports surfaced that the company will sell or spin off its Sikorsky helicopter unit. The business accounts for 10% of revenue and 6% of EBIT so it's definitely a big part of United Technologies. But this is also a rumor from an unnamed source, so the likelihood of of an actual sale is probably small. I'd chalk this up as noise in trading unless management makes any clear indication that it's looking to unload Sikorsky.  

What to read into earnings reports
The market's reactions to earnings this month has been strange because most companies, like Caterpillar today, are beating expectations soundly. The problem is that after 30% gains last year, investors are looking for any flaw they can to sell stocks -- thus sending the market lower.

The bottom line is that if earnings continue to be strong and the economy grows, the stock market is still on solid footing. Find reasons to sell if you want, but when companies reporting earnings are moving higher I think that's good news for the market long-term.

Fool contributor Travis Hoium 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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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$29,490.89 (%)
Caterpillar Inc. Stock Quote
Caterpillar Inc.
CAT
$179.63 (4.91%) $8.40
Raytheon Technologies Corporation Stock Quote
Raytheon Technologies Corporation
RTX
$85.53 (2.91%) $2.42

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

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