Caterpillar Grinds Its Gears on a Sluggish Day for the Dow

The market is ending the week with a whimper, with major U.S. indices hanging around breakeven. The Dow Jones Industrial Average was down just three points as of 2:30 p.m. EDT, although about half of the index’s member stocks are in the green. Wal-Mart  is near the top of the Dow today with a 1% gain despite downbeat news from U.S. consumers, while Caterpillar  is today’s leading index loser with a 1.7% drop. Let’s catch up on what you need to know.

Consumer spending isn’t out of the woods
The Department of Commerce announced today that U.S. consumer spending nosed down by 0.1% in April after seasonal adjustments, the first monthly decline of 2014 and a big drop-off from March’s 1% increase. Utility spending accounted for the bulk of the drop, with the tail end of the winter weather forcing more consumers to shell out big bucks to keep homes heated in March — a trend that eased last month. While core inflation is rising nationwide, Americans still are seeing only modest gains in income: disposable income picked up 0.2% last month. Unless the economy’s rise can push that figure higher, leading retailers will have to fight tooth and nail for growth as consumers remain conservative with spending.

That trend has slammed Wal-Mart’s stock lately. Shares of the world’s retail king have fallen off by more than 6% over the past six months, and it’s not just the harsh winter that’s to blame. Wal-Mart has had to keep prices down in order to appeal to its core working-class customer band, and falling traffic in the company’s stores — American traffic declined by 1.4% in the first quarter — is chipping away at the company’s earnings prospects and hopes for a big stock turnaround. While Wal-Mart’s success with its online segment, along with its smaller Neighborhood Market locations — designed to compete with the likes of grocery and drug stores — is encouraging, the retailer will have to start finding ways to keep consumers heading through its doors if it wants to impress investors in the second half of 2014.

Unlike Wal-Mart, Caterpillar’s stock has been one of the Dow’s biggest success stories of the year. Caterpillar took a beating with the industrial sector’s downturn in the post-recession years, but this stock has risen more than 15% since 2014 kicked off. Today, however, the notice that Chief Information Officer Randy Krotowski will depart gave investors just enough concern to send this stock into a tailspin on the day.

The departure of one officer isn’t all that’s concerning about Caterpillar going forward. The mining industry is a major part of this company’s business, and it remains mired in sluggishness. While some analysts have argued that the mining industry could see a bottom soon, that’s not a huge relief to Caterpillar investors who could use a meaningful turnaround in this area’s revenue. The company’s resource industries segment, which oversees mining equipment sales, experienced a revenue drop of 37% year over year in its first quarter. While Caterpillar’s gains in construction have been impressive so far in 2014, this company will need mining to show signs of life in the coming quarters in order to indicate a turnaround is in the cards.

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