Why Hewlett-Packard Company (HPQ)’s Blowing the Dow (.DJI) Away

Fear has held the Dow Jones Industrial Average back today after international markets were hammered overnight. The blue-chip index has dropped a nominal four points as of 2:30 p.m. EDT. What has kept the Dow afloat on a day when markets around the world are sinking? Thank Hewlett-Packard Company (NYSE:HPQ), which has roared to massive gains following last night’s earnings report. Let’s dig into the stories you need to know about today.

China takes down the market, but HP soars
The markets’ woes began before U.S. markets opened this morning when it was reported that Chinese manufacturing slumped into contraction territory for the first time in more than half a year. The decline raised fresh concerns about China’s slowdown as growth continues to tighten in the world’s second-largest economy. Asian markets reacted violently: Japan’s Nikkei plunged by 7.3%, and Hong Kong’s Hang Seng fell 2.5%. The Hang Seng has been unable to keep up with other world markets this year, falling 3.5% year to date as China’s slowdown takes its toll. Today’s data won’t help it recover its losses.

Despite the downbeat data from across the Pacific, however, Hewlett-Packard Company (NYSE:HPQ)has blown the doors off the Dow with a remarkable gain of 14.7%. The company’s earnings per share beat analyst expectations, rising slightly year over year when adjusted for one-time items. Revenue fell more than 10%, thanks in part to a 20% drop in PC sales — hardly surprising, considering the PC market’s nosedive.

Yet HP’s expectations for the future sparked investor optimism. Hewlett-Packard Company (NYSE:HPQ) expects earnings for the current quarter to top analyst projections, and CEO Meg Whitman plans to continue cutting costs by axing another 29,000 jobs by the end of fiscal year 2014. Still, investors need to be careful with this volatile stock. While Whitman has done a good job driving down the company’s costs, until Hewlett-Packard Company (NYSE:HPQ) can turn around sales in a meaningful way, it will be in danger of losing more ground to competitors. The company’s turnaround plan may look nice, but its results have hardly justified the stock’s 70% gain this year alone.

Hewlett-Packard Company (NYSE:HPQ) is not the only reason the Dow is staying near breakeven. International Business Machines Corp. (NYSE:IBM) is up just 0.2%, but the Dow’s price-weighted formula means IBM’s gains make a much bigger difference than many of today’s losers. IBM’s per-share cost of more than $200 — far more than any other single stock on the Dow — gives this stock plenty of influence in the Dow’s activity.