Caterpillar appears to be telling market bulls: Not so fast.
The equipment maker has just fired a shot across the bow of all the traders who have rushed to buy up stocks based on the vague notion that 2017 earnings will be significantly higher for the following reasons that have largely to do with the incoming Trump administration:
1) There will be tax cuts;
2) There will be fewer regulations, and;
3) There will be a massive stimulus program.
Because of this mental gymnastics, the stock market has become expensive. Shares are now trading at close to 17 times 2017 earnings, well above the historic 10-year average of roughly 14.3, according to FactSet (You can read more about this in my note from yesterday here).
Along comes Caterpillar, which was presenting at the Credit Suisse Industrials Conference. They note that while the company is "encouraged by the potential of a U.S. infrastructure bill, tax reform, smart regulation, commodity prices and the recent OPEC announcement," the current 2017 consensus earnings estimate of $3.25 is "too optimistic considering expected headwinds."
What might those headwinds be? They note, for one, that at $38 billion, 2017 sales will likely be about $1 billion lower than the 2016 outlook.