The lower-than-expected numbers from Caterpillar (CAT) (three month sales notably weak) and FedEx (FDX) (worse-than-expected international volumes) is highlighting an issue bears have been pounding on for months: the global economy may not be as healthy as the "teflon" U.S. stock market might indicate.
Those bears have insisted the U.S. stock market is doing better because of...
- An activist Federal Reserve, which is forcing investors into stocks and high-yielding instruments; and
- The U.S. economy, while tepid, is still better than most of the world.
Now, thanks to the news from FDX and CAT, the bears have some ammunition.
Of course, the market is largely ignoring FDX and CAT, but this only plays into the hands of those who argue traders only care about the Fed.
And who can blame them? The liquidity has been insane--there are inflows into stocks practically every day. It's hard to fight!
Still, CAT was particularly shocking. Looking at these sales figures for the three months ending in February:
- Worldwide Machine Sales: -13%
- Asia/Pacific: -26%
- Europe, Africa, Middle East: -9%
- North America: -12%
Asia/Pacific down 26 percent? That is catastrophic! Some of this can be explained by the fact that the Chinese New Year took place in January of last year and February of this year. Some, but not all.
Of course, it's been known for some time that mining equipment sales have been considerably weak. Now there are concerns that construction sales may be dropping off.
Also, I would note that Wells Fargo (WFC) downgraded Deere (DE) and AGCO (AGCO) today, saying they are becoming more bearish on U.S. farm equipment demand due to lower anticipated corn prices. This is not the same as the "sluggish global economy" theme, but it is impacting machinery stocks as well.
You know what is amusing? All those strategists who have been bearish because they thought earnings were what mattered and they saw earnings growth slowing and that revenues were flat have all now thrown in the towel and gone bullish!