The big revelation about the market today is just how uneasy investors are about rising rates and tariffs. What really drove this point home was what happened with Caterpillar stock today.
Caterpillar had an excellent quarter. The company reported $2.82 earnings per share for the quarter, topping analysts’ consensus estimates of $2.11 by $0.71. Revenue also beat coming in at $12.86 billion for the quarter, compared to analysts’ expectations of $11.99 billion. Revenue for the quarter was up 30.9% on a year-over-year basis. Caterpillar even raised its fiscal year 2018 earnings guidance to the $10.25 to $11.25 range.
Everything was bells and roses and then Chief Financial Officer Bradley Halverson used the phrase “high watermark for the year”.
What? So now CEOs and CFOs know that they can’t use anything that suggests a “high watermark for the year” in this kind of market where traders are extremely nervous about the rising costs of raw materials caused by tariffs and trade wars, as well as the rising 10 year yield and the flattening of the yield curve. That was all it took folks for Caterpillar stock to plunge and pull the market down with it. I believe this reaction from traders today shows you the accumulative effects trade wars and rising inflation are having on trader psychology.
Caterpillar’s outlook on the global economy is often used as a barometer for the health of the global economy because its equipment is used for massive capital projects in countries around the world.
What also helped push markets down was the President’s comments today about Iran.
President Trump trolled OPEC last week regarding their oil production cuts to push up the price of oil. Now, the President sounds like he’s going to scrap the nuclear deal which could put sanctions back on Iran’s oil, thereby pushing the price of oil higher. The Trump Administration’s position is that it’s okay for the U.S. government to push the price of oil higher via sanctions against Iran, but it’s not okay for OPEC and Russia to cut production to push the price of oil higher. Sanctions against Iran will push the price of oil up which is inflationary, causing the Fed to hike rates faster to combat that inflation.