Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Caterpillar Inc. (CAT), Microsoft Corporation (MSFT): This Threat Is Holding the Dow (.DJI) Back

The stock market started this week off the same way it did last week — with a pullback stemming largely from earnings-related announcements. As of 10:50 a.m. EDT, the Dow Jones Industrials has fallen by 59 points, or 0.4%, while other major benchmarks are also moderately lower. Yet behind the scenes, another piece of discouraging news could have an even bigger impact on the Dow — not just today, but in the long term as well.

Caterpillar Inc. (NYSE:CAT)On one hand, the obvious negative news for the Dow came from Caterpillar Inc. (NYSE:CAT), which announced lower profit, reduced capital expenditures, and guidance for future earnings that came in at the lower end of its previous range. In particular, mining-equipment sales were a sore spot for the company, as falling prices for commodities have left miners in a much more precarious financial position that won’t support as many large equipment purchases. Yet with all the news from China and elsewhere in recent months pointing toward a slowdown in industrial activity, Caterpillar Inc. (NYSE:CAT)’s news wasn’t surprising, even though the stock dropped nearly 1% after initially posting gains near the open.

What did come as a shock for many was the decline in existing-home sales in March. The Home Depot, Inc. (NYSE:HD) fell 0.3% on the news, given its sensitivity to the health of the housing market in particular. The major threat, though, is that many investors have pointed to the strength of housing as justifying much of the market’s recent rally. The Home Depot, Inc. (NYSE:HD) in particular sports a high earnings multiple of nearly 25. If housing’s rebound proves once again to be short-lived, as similar recoveries have in past years, then the disappointment could spread not only among housing-related companies, but across the entire stock market.

Elsewhere in the Dow, Microsoft Corporation (NASDAQ:MSFT) has soared 4% after an activist investor reportedly accumulated a $2 billion position in the company’s stock. With the software giant having long struggled to navigate changing tech trends, investors have grown increasingly impatient with Microsoft Corporation (NASDAQ:MSFT)’s progress. Yet even as shareholders applauded the move, having to deal with an activist may prove a further distraction for Microsoft, and unless it results in solid strategic ideas that produce results, the entire episode may simply prove to be another in a long line of disappointments.

The article This Threat Is Holding the Dow Back originally appeared on

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Home Depot. The Motley Fool owns shares of Microsoft.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.