Caterpillar Testing the 2018 All-Time High

Dow component Caterpillar Inc. (CAT) rallied more than 2% in Friday’s U.S. session after Wells-Fargo pounded the table, upgrading the heavy equipment manufacturer to ‘Overweight’. The rally stretched within 5 points of January 2018’s all-time high at 173.24, initiating a test that could eventually trigger a major breakout. However, market players may need to tread lightly because this level marks resistance while accumulation has failed to keep up with bullish price action.

Caterpillar Slumping 2020 Profits

The company reports Q3 2020 earnings on Oct. 27, with analysts expecting the company to report a profit of $1.15 per-share on $9.78 billion in revenue. That EPS performance would mark a 57% decline compared to the same quarter in 2019, raising doubts about the sustainability of a breakout. The stock is also trading nearly 40 points higher now than it was during the Q3 2019 earnings release, suggesting that short sellers will reload positions, given the right catalyst.

Well Fargo analyst Andy Casey outlined three reasons for higher Caterpillar prices, as follows:

  1. Revenue growth from global growth acceleration, with signs that key markets critical to the bear case are beginning to bottom, with likely growth by mid-2021 and the absence of 2020 inventory reduction actions.
  2. Expected margin improvement due to higher revenue generation across improved cost structure, although still below 2021 Investor Day target and in-line for 2022.
  3. Anticipated higher cash flow that could be allocated to enhance growth.

Wall Street And Technical Outlook

Wall Street consensus remains mixed despite the upgrade, with a ‘Moderate Buy’ rating based upon 7 ‘Buy’, 7 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $120 to a Street-high $220 while the stock ended Friday’s session more than $14 above the median $155 target. The company may need to fire on all cylinders in next week’s earnings report in order to sustain this elevated placement.

Caterpillar is a cyclical play near an all-time high in the 11th year of a bull market that many believe is growing ‘long-in-the-tooth’. Traditionally, their performance tracks economic boom and bust periods, as well as developments in BRIC countries where heavy earth movers are needed for industrialization. 2020 China growth is stronger than expected after pandemic shutdowns but North America and Europe are posting sub-par numbers, adding risk for breakout buyers.

For a look at all of today’s economic events, check out our economic calendar.

U.S. Stocks To Watch Today

Caterpillar

Caterpillar will report its first-quarter earnings results today, before the market open. This report is very interesting since Caterpillar is a great gauge of construction activity which may be hit hard due to cuts to capital spending all over the world.

Analysts expect that Caterpillar will report earnings of $1.67 per share and also predict that second-quarter earnings will dip to $0.69 per share. However, the company is expected to restore its earnings power by the fourth quarter.

Caterpillar shares are down about 20% year-to-date and their current price implies that the negative impact from coronavirus will be mostly a one-time event, and the company will soon return to business as usual.

In this light, the market will focus on management’s commentary as the risk of a prolonged downturn in the world construction activity is material.

Pfizer and Merck

Two healthcare giants will provide their first-quarter earnings reports today before the market open. Naturally, all big healthcare stocks are in spotlight during the coronavirus pandemic.

Pfizer is expected to report earnings of $0.71 per share, while Merck is expected to report earnings of $1.34 per share. The market will likely focus on commentary regarding the potential drugs and vaccine against COVID-19 but traders will also watch out for signs of dividend growth since both companies are solid dividend payers.

Advanced Micro Devices

AMD is one of the stocks which have performed very well during the current downturn and gained more than 20% of market capitalization since the beginning of this year.

AMD is trading just below its all-time highs, and a good earnings report can lead to a breakout to new levels and increased upside momentum. The company will report its earnings today after the market close.

Currently, analysts expect that AMD will report earnings of $0.18 per share and also expect continuation of earnings growth in the upcoming quarters. AMD is more expensive on a forward P/E basis than its competitor Intel since the market believes that AMD will increase its market share and expand its earnings power.

In case the first-quarter report confirms this consensus, AMD shares may have major upside, especially in case there’s no sell-off in the general market. I’d expect increased trading activity ahead of the report so AMD shares may be very volatile today.

What is Copper Telling Us About the World Economy?

Many people consider copper to be the leading indicator when it comes to the world’s economy. It makes sense because when the economy booms, construction tends to accelerate as well and therefore, global demand for industrial commodities, such as copper, silver, iron, ore, etc., usually rises. However, if the global economy slows down, construction does too, and the price of these commodities starts to head lower.

If we take a quick glance at copper’s weekly chart, we cannot say anything positive about the world economy. The price created a big triangle pattern in late 2017, which was broken to the downside and shortly afterward copper plunged.

Copper Weekly Chart
Copper Weekly Chart

The very same thing is happening again as copper is now forming a triangle pattern and the price is now testing the lower line of this formation. Should the downside break occur again, the bearish trend could be confirmed, with the next target at the 200-week moving average at 2.60 USD and then at the current cycle lows near 2.55 USD. However, as this triangle is a continuation pattern, the price might decline deeper below the 2.55 USD.

The presence of such a bearish picture is probably not good news for the global economy and many economists and institutions already expect weaker economic growth over the next quarters.

Moreover, the US giant Caterpillar – that produces construction machinery – has also warned that the global economy will deteriorate in the near future and the company has slashed the outlook for 2019.

With falling copper, inflation expectations usually head lower and price pressure also tends to dissipate during weaker economic growth. This means that central banks could alter the current hawkish stance to support the economy.

So, what is copper telling us about the world economy? If the latest triangle pattern breaks to the downside, we might expect some downturn globally. On the other hand, should the metal stabilize and rise back above 2.87 USD and/or above 2.95 USD, we could see a brighter picture for the global economy.

Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don’t represent a recommendation or an investment advice by TeleTrade. Indiscriminate reliance on illustrative or informational materials may lead to losses.

Global Stocks Struggle as the Pressure on Stock Markets Continues

On Tuesday afternoon, the markets managed to avoid the large-scale sale. The initial decline of the US stock indices by more than 2% was mostly redeemed. Index S&P500 lost 0.55%. In a moment Caterpillar And 3M shares were in decline significantly (by more than 10%). Strictly speaking, their reporting was not bad, but investors were worried by the impact of tariffs on the prospects of companies. Caterpillar noted the anticipated increase in costs due to steel tariffs. Diversified 3M indicated a probable drop in revenues due to the volatility in foreign exchange rates.

Markets Avoid the Big Sale-Off

Nevertheless, sharply declined shares found their buyers, significantly reducing the initial drawdown. A similar situation is observed on Asian bourses in the morning. The indices of China and Japan at the time of writing remain near the levels of the day opening.

However, American key indices S&P500 and DJI, and Asian Nikkei225 and Heng Seng remain below their 200-day moving averages. This may lead to a further sale of stocks by large funds that perceive this line as an important trend signal.

The currency market maintains a balance of forces supporting the dollar near the highs of the month. The dollar index has been traded near 95.70 level for the fifth day, as the focus of the markets shifted to the reporting of companies, as well as to the expectation of comments from major global central banks.

Later today, the Bank of Canada will announce its decision on the rates. The third increase by a quarter of a percentage point to 1.75%  is expected this year. A hawkish tone of the comments is able to support the Canadian currency.

In the evening, the Beige book will be published, it is an economic review from the regional branches of the Fed. The attention of the market participants will be focused on the comments about the influence of import tariffs on the prices and profit and consumer activity.


Suggested Articles


On Thursday, the focus shifts to the ECB, where the euro often experiences a surge of volatility during a Draghi press conference.

Thus, the current delicate balance of the foreign exchange market will soon be seriously tested. Investors in the stock markets are nervous because of the worsening prospects of companies’ incomes, which can force the Fed to be cautious about the plans of tightening the policy, but inflation is gaining momentum due to the tariffs, rigid labor market and currency volatility in developing countries.

These conditions are potentially favorable for gold. It unfolded to growth from early October, trading about $1230 currently and being pushed away from the bottom of the $1180 per ounce.

This article was written by FxPro

Equities Sink On Global Tensions, VIX Jumps 20%; Earnings Still In Focus

The Jamal Khashoggi Killing Has Markets On Edge

Global tensions sent equities markets around the world diving for cover. Fear of slowing growth, the fallout from the US-Sino trade war, and the killing of journalist Jamal Khashoggi all played a part. Asian markets were down the most falling an average 2.5% to 3.0% at the close of the Tuesday session. Indices in the region are trading at or near long-term low levels with the Korean Kospi hitting a near 20 month low with today’s action. The Volatility Index rose more than 20%.

European markets were down an average -1.0% to -2.0% at mid-day, up off the low of the session but still at or near their own 20-month lows and indicated lower. Focus in this region is on the murder of Khashoggi which is turning into a major international event. The journalist, a self-imposed exile from Saudi Arabia, has deep ties to the US, EU and other major western powers who are now faced with the problem of how to deal with the Saudi’s now the cat is out of the bag. The Saudi’s have promised not to weaponize oil but the crisis is far from over.

The Tech Wreck

Technology stocks were hit the hardest in the EU session. Chipmaker AWS led with a loss near -25% as the companies outlook for year-end sales was not convincing enough for shareholders to stand pat. AWS released earnings yesterday delivering a near 50% increase in revenue with upbeat guidance for the final three months of the year.

Tech stocks led Tuesday’s route in both the EU and the US. US futures were indicated down an average 1.5% to 2.0% going into the opening bell and looking weak despite a round of positive earnings releases. Reports from United Technologies, Harley Davidson, Verizon and McDonald’s all beat analysts expectations on the top and bottom lines sending shares of these stocks higher in early action.

US Corporate Earnings Are Strong, Outlook OK

United Technologies and Harley Davidson were able to raise guidance, executives at HOG say stronger sales in the EU have helped to offset issues with tariffs and were a boost to earnings. Verizon’s beat was driven by better than expected subscriber growth. On the flipside, shares of Caterpillar fell more than -6.0% despite its top and bottom line beat due to poor outlook and weak guidance. The company says tariffs and trade woe are having an impact on profitability but was able to reaffirm its guidance. The problem for traders is that guidance was in a range with the lower end well below analysts consensus.

McDonald’s beat was driven by strong comp store sales. Comps in the US rose a strong 2.4%, just shy of the 2.5% estimated, but global comps rose a whopping 4.2%. Analysts had been expecting a more tepid 3.7% but strength was seen in the lead international markets, up 5.4%, and in the high-growth target market, up 4.6%. There is no economic data scheduled for today so traders will be focused on earnings and global headlines. Notable earnings after the close of Tuesday’s US session are Chubb, Texas Instruments, and iRobot.

Breaking News: China Manufacturing PMI Falls Short of Expectations for July

The major U.S. stock indexes tumbled at the start of the week with the selling led by a steep drop in the technology sector for a third consecutive session.

In the cash market, the benchmark S&P 500 Index settled at 2802.60, down 16.22 or -0.58%. The blue chip Dow Jones Industrial Average finished at 25306.83, down 144.23 or -0.57% and the tech-driven NASDAQ Composite closed at 7630.20, down 107.13, down 1.38%.

Facing pressure in the NASDAQ Composite Index were shares of Facebook and Netflix, which lost 2.2 percent and 5.7 percent respectively. FANG stocks Amazon and Google-parent Alphabet fell 2.1 percent and 1.8 percent respectively.

The FANG stocks weren’t the biggest losers on Monday, however. Shares of Twitter dropped another 8 percent. It was followed by a 7.7 percent loss in Take-Two Interactive, a 5.7 percent decline in Electronic Arts and a 5.5 percent pullback in Akamai Technologies.

Earnings News

Caterpillar said in its second-quarter earnings report that recently imposed tariffs will shave off between $100 million and $200 million from its bottom line in the second half. The company also reported better-than-expected earnings and raised its full-year outlook, however.

Economic News

Reports were scare on Monday with U.S. Pending Home Sales coming in 0.9% higher versus an estimate of 0.4%. It also reversed last month’s 0.5% decline.

Rattling investors, however, was a report by Reuters that Canada, the European Union, Japan, Mexico and South Korea will meet next week to discuss a response to threats made by President Donald Trump about slapping tariffs on U.S. auto imports.

Tuesday’s Early Reports

In breaking news, China reported on Tuesday that factory activity was slightly lower than expected in July, with the official manufacturing Purchasing Manager’s Index (PMI) coming in at 51.2

The Chinese manufacturing PMI had been forecast to fall to 51.3 in July from 51.5 in June, according to a poll of economists by Reuters.

China’s official services PMI also fell in July. The report showed a reading of 54.0 from 55.0 in June.

In Japan, the unemployment rate rose to 2.4%, versus a 2.3% estimate and 2.2% previous read. Preliminary Industrial Production fell by 2.1%, worse than the -0.3% forecast and -0.2% previous read.

In New Zealand, Building Consents fell 7.6% versus a 6.9% previous report. ANZ Business Confidence was -44.9. Last month the report was -39.0.

Australian Building Approvals jumped 6.4% versus a 1.1% estimate. However, the previous month was revised lower by 2.5%. Private Sector Credit hit the estimate of 0.3%, slightly better than last month’s 0.2%.

What To Expect Ahead of A Busy Earnings Week?

Major U.S Benchmark indices finished the week on the red as investors reacted to mixed earnings reports. Alphabet Inc. (NASDAQ: GOOGL) and Amazon.com, Inc. (NASDAQ: AMZN) led the foray in beating earnings estimates as Facebook, Inc. (NASDAQ: FB) Imploded on missing estimates and providing guidance that fell short of expectations.

It yet again promises to be a busy week as a string of high profile companies is expected to post their quarterly earnings results.

Earnings Report expectations

Apple Inc. (NASDAQ: AAPL)

In the wake of Google and Amazon beating estimates, focus this week shifts towards Apple Inc. (NASDAQ: AAPL) given the amount of market cap it commands. The iPhone maker is to post its second earnings report after market close on July 31, 2018.  Analysts expect the company to post revenue of $61.14 billion representing a 15% year-over-year increase. Earnings per share, on the other hand, are projected at $2.16 a share.

Wall Street will also pay close attention to the number of iPhones the company sold in the second quarter, after a disappointing first quarter whereby unit sales rose by only 1.5 million. In the March quarter, service revenue rose 31% to $9.19 billion thereby helping the company beat sales and EPS expectations.

For the June quarter, Wall Street expects service revenue to come in at $9.21 billion representing a 21% increase. Investors will also pay close attention to other products sales made up of headphones, Apple TV Set-tops, as well as Apple Watch. Expectations are that the company will report a 34% increase in revenues in this segment at $3.68 billion.

Tesla Inc. (NASDAQ: TSLA)

Tesla Inc. (NASDAQ: TSLA) needs to post stellar second-quarter earnings report to avert a further implosion of the stock. After initially rising to highs of $373 a share, the stock has come down tumbling to below the $300 share mark.

Tesla reports on August 1, 2018, having achieved a significant milestone in the production of 5,000 Model 3s, a week. However, the company is expected to report a net loss of $3.49 a share. Investors will focus their attention on the number of Model 3 units the company delivered in the quarter.

The expectation is high that the company did deliver 10,000 more units in Q2 compared to Q1. Revenue, on the other hand, is expected at $4 billion on the sale of the additional cars. Attention will also be on the company’s expenditure, a headwind that has clobbered the company for years preventing it from turning in a profit.

Q3 Guidance will also have to come overboard to prevent further slide of the stock. Given that the company has hit 5,000 a week production milestone investors expect the company to provide a pathway to profitability in Q3.

Caterpillar Inc. (NYSE: CAT)

Caterpillar Inc. (NYSE: CAT) will report its earnings report on July 30, 2018, before the earnings bell. After delivering a 120% year-over-year improvement in earnings in Q1, expectations are high that the trajectory continued in Q2.  Investors expect the company to report a 22% increase in total sales, projected at $13.8 billion.

Earnings per share, on the other hand, should tickle in at $2.66 a share, representing a 79% year-over-year increase. The earnings beat is what Caterpillar needs if the stock is to bounce back after underperforming the market in the first half of the year.

Loews Corporation (NYSE: L)

Just like Caterpillar, Loews Corporation (NYSE: L) is scheduled to report on July 30, 2018, before the market opens. In Q1, the company reported a 14% surprise earnings beat. Expectations are high that the company beat estimates in Q2 on the strong performance of its CAN financials and Loews Hotels units Consensus estimates indicate the company could post earnings of 0.73 cents a share representing 3.9% year-over-year decrease.

AK Steel Holding Corporation (NYSE: AKS)

AK Steel Holding Corporation (NYSE: AKS) will report earnings on July 30, 2018, with expectations high that the company will beat estimates. The stock has already broken out of a critical resistance level in the wake of other steel companies reporting stellar quarterly financial results.

The consensus forecast for the quarter is that the company will report earnings of 23 cents a share, an increase from 19 cents a share reported a year earlier. Steel stocks are expected to continue powering high, the sector has emerged as a bright spot in the economy.

Procter & Gamble Co (NYSE: PG)

The owner of blockbuster brands like Gillett Razors and Pampers Diapers, Procter & Gamble Co (NYSE: PG) is to report its fourth-quarter and full year financial results on July 31, 2018. At the start of the year, the company forecasted organic sales gains of 2.5% up from an initial estimate of 2%.

For the current quarter, Wall Street expects the company to report revenues of $16.55 billion. Full-year sales, on the other hand, are expected at $66.87 billion. Investors will also want to hear what the company is doing as part of its cost-cutting drive. Cost cuts are expected to allow the company to venture into other growth areas.

Pfizer Inc. (NYSE: PFE)

Pharmaceutical giant Pfizer Inc. (NYSE: PFE) is to report its second-quarter earnings report before market open on July 31, 2018. The focus will be on whether the company maintained the positive earning streak in the quarter, after a positive earnings surprise of 4.05% in Q1.

Consensus estimates indicate the company could report EPS of $0.74 a share on revenues of $13.31 billion.

DowDuPont Inc. (NYSE: DWDP)

DowDuPont Inc. (NYSE: DWDP) is to report its recent quarterly earnings on August 2, 2018, before market open. Last year same quarter, the company reported earnings per share of $1.12, beating analyst’s expectations of $1.1 share. For the current quarter, investors expect the company to post EPS of $1.3 a share. Revenues, on the other hand, should come in at $23.6 billion.

Baidu Inc. (ADR) (NASDAQ: BIDU)

Investor’s sentiments are high on Chinese internet giant Baidu Inc. (ADR) (NASDAQ: BIDU) posting impressive quarterly results after the market close on July 31, 2018. Consensus estimates indicate the company could post a 30.2% year over year increase in sales that could come in at $4.01 billion. For the full year, the search giant is expected to post sales of $16.09 billion. Analysts expect the company to issue a sales guidance of $19.46 billion for next year.

Sprint Corp (NYSE: S)

Sprint Corp (NYSE: S) is to report its Q1 financial results on July 30, 2018. Wall Street expects the company to report earnings per share of $0.01 a share compared to $0.05 reported last year. Total revenue is poised to decline 0.7% year over year to $8.1 billion.

Teva Pharmaceutical Industries Ltd (ADR) ADR (NYSE: TEVA)

Teva Pharmaceutical Industries Ltd (ADR) ADR (NYSE: TEVA) is to report on its recent quarterly earnings report before the market opens on August 2nd, 2018. The expectation is high that the company will post sales of $4.75 billion down from $5.69 billion reported last year. Earnings per share, on the other hand, should come in at $0.67 a share.

Shake Shack Inc. (NYSE: SHAK)

Shake Shack Inc. (NYSE: SHAK) is expected to post sales of $110.20 million for the recent quarter after market close on August 2, 2018. Earnings per share are expected at $0.17 a share. The company is also expected to maintain full-year sales estimates of $451.32 million.

Kraft Heinz Co (NASDAQ: KHC)

Kraft Heinz Co (NASDAQ: KHC) will report earnings before markets open on August 3, 2018. Investors expect the company to post EPS of $0.92 a share up from $0.89 a share reported in the previous quarter. Revenue, on the other hand, is expected at $6.59 billion.