Stocks Volatile After Fed Extends Stimulus

After spending most of the day near breakeven, stocks dropped following the Federal Reserve's announcement that it will extend its bond purchasing program. "The recovery in the housing sector slowed somewhat in recent months," the Federal Open Market Committee said today, according to Bloomberg. "Fiscal policy is restraining economic growth."

The Dow Jones Industrial Average is down 0.51% just before 3 p.m. EDT following this morning's weak economic data. Automatic Data Processing's October private-sector employment report showed an increase of 130,000 jobs, which was well short of expectations of 150,000. In addition, September's number was revised downward by more than 20,000 jobs. With those trends in mind, and the Fed's decision behind us, here are today's movers and shakers in the market.

Inside the Dow Jones Industrial Average, Caterpillar is trading lower again today, down 0.9%. In a move to cut costs after a dismal third quarter, which saw earnings plunge 44% from the previous year, the company is closing a plant in Texas.

"We recognize this will impact our work force and their families, but after considering a number of options and alternatives, we have concluded we need to take this step to achieve a more sustainable, long-term cost structure," said Caterpillar spokesperson Rachel Potts regarding the plant closure.

Caterpillar said it expects revenue to be roughly $11 billion lower this year, and it predicts revenue will remain flat into 2014. This plant closing is a small step for Caterpillar and likely not the last cost-cutting measure investors will see until the company can align its costs with current demand.

Boeing's 737 MAX. Photo Credit: Boeing

Boeing has soared more than 80% in the last year and is up 0.5% today. Yesterday, Boeing announced that its engineers confirmed another one percentage-point gain in its 737 MAX fuel efficiency. That may not sound like a lot, but that's on top of the already promised 13% fuel-efficient advantage compared to the industry's most efficient single-aisle airplanes.

"This recent fuel-efficiency gain will widen the performance gap in the single-aisle market, reinforcing the 737 MAX's position as the value leader," Keith Leverkuhn, vice president and general manager for the 737 MAX program, Boeing Commercial Airplanes, said in a press release.

The 737 MAX's fuel-efficiency advantage over competitors' aircraft is even more important considering that the ratio of fuel costs to overall costs has doubled in the last decade. Further, almost 70% of new deliveries over the next two decades will be single-aisle airplanes -- growth that Boeing needs to grab with its newer and more efficient 737 MAX.

Graph by author. Information from Boeing's 20-year forecast.

Outside the Dow, General Motors is up 3% after delivering solid third-quarter results. Its revenue bounced 4% to $39 billion, while its pretax adjusted earnings improved to $2.6 billion. That was good for pretax earnings of $0.96 per share, beating Wall Street estimates of $0.93 per share.

One of the most important takeaways for investors was General Motors' focus on improving its margins in North America -- its main profit-driver.

Graph by author. Information from General Motors' third-quarter report.

General Motors' goal is to catch Ford , which has consistently topped 10% in North America margins, and reach 10% margins consistently by mid-decade. Further, General Motors wants to achieve 10% margins during a mid-cycle where seasonally adjusted annual rates, or SAAR, is around 15 million vehicles sold. That's a huge and profitable improvement; analysts now estimate that Detroit automakers can now break even at a SAAR of between 10.5 million and 11 million vehicles. That's a welcome change from the days when Ford lost more than $30 billion between 2006 and 2008 and General Motors filed for bankruptcy in 2009. Both Ford and General Motors appear poised to take advantage of the surge in automotive sales -- and take that straight to the bottom line.

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Fool contributor Daniel Miller owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. 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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