What's going on?
Butterflies for US construction equipment behemoth Caterpillar: the company reported quarterly earnings on Monday that missed expectations and its stock fell 9%.
What does this mean?
Caterpillar said its fourth-quarter profit, while 16% higher than a year ago, was well short of investors’ predictions. The yellow digger-maker also brought in less revenue than expected and released a disappointingly “modest” forecast for 2019, likely bugging investors. It’s the first time in five years that Caterpillar, a bellwether for global economic activity, missed expectations for both sales and profit and lowered its own forecasts (tweet this). Time to bring out the steamroller?
Why should I care?
For markets: Trade war biting.
Caterpillar makes 59% of its sales outside the US. China alone accounts for 5%-10% of that. But lower demand there last quarter meant that Caterpillar’s sales in the Asia-Pacific region actually shrank compared to a year before. The world’s second-largest economy is currently experiencing its slowest growth in 28 years, not helped by the ongoing trade war with the US. Fresh trade talks between the two kick off later this week – and Caterpillar won’t be alone in hoping a deal is reached (we’re looking at you, Apple).
The bigger picture: The China chopping block.
Chipmaker Nvidia is struggling with the Chinese slowdown too: it lowered its sales expectations for the fourth quarter of 2018 by nearly 20% on Monday – and its original forecast for the quarter was already below analyst expectations. Nvidia said China was partly to blame; the company’s stock fizzled down 14%. Its shares have now lost over half of their value since October, when Nvidia’s last set of earnings got hit by evaporating demand for its cryptocurrency mining hardware.