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Caterpillar Disappoints, Weighs On The Markets

Zacks Equity Research
Investors seeking to capitalize on strong fundamentals but worried about trade war should consider mid-cap stocks in the basket form.

Pre-market futures are down at this hour to kick off a new week of trading, following mixed results in Asia overnight and a down day in the Eurozone. Although the beginning of the week doesn’t have too much in the way of new economic data, we will finish this week with Friday’s non-farm payrolls and Unemployment Rate from the Bureau of Labor Statistics (BLS). And, of course, the heart of Q4 earnings season beats strongly.

We do see one important piece of econ data, however, albeit of a regional variety: the Chicago Natural Activity Index. A headline of +0.27 for December showed improvement over November’s downwardly revised 0.21. (Any figure over 0.00 represents above-trend growth.) This is the best month for the Chicago survey since September cracked above 0.3. August reached well into the 0.5s.

Production and employment provided the engine of strength for economic growth in the largest U.S. city in the Midwest (Great Lakes) region. These were slightly offset by lower personal consumption and housing data last month. Of course, Chicago is also making headlines this week for its polar vortex anticipating record low temperatures, which would likely have some impact on economic data in future months.

Q4 Earnings Update

This will be a very important week for earnings results, especially in the Tech industry: Apple AAPL reports Tuesday after the market closes — and recall the company had warned to the downside a few weeks ago, for the first time in recent memory — followed by Facebook FB and Microsoft MSFT on Wednesday and Amazon AMZN Thursday.

This morning, the market is paying close attention to industrial equipment major Caterpillar CAT, which has disappointed expectations on both top and bottom lines. Earnings of $2.55 per share missed the Zacks consensus $2.98 by more than 14%, while sales of $14.34 billion marginally came up short of expectations. Guidance was also found a tad wanting.

Even worse, the miss pivoted on the three words no investor in international stocks wants to hear: “Slow China demand.” We see U.S./China tariff complications having a detrimental affect on the company in the quarter. Shares are down 6% at this hour, giving back most of the 7.7% gains Caterpillar has made year to date. For more on CAT’s earnings, click here.

Zacks Rank #4 (Sell-)-rated Bank of Hawaii BOH also came up short of expectations in its Q4 results, posting $1.30 per share on $166 million in revenues. This amounts to a 6-cent miss on the bottom line and a very menial -0.05% miss on the top. But considering this stock had been up 14% year to date, it makes sense to see this early market selloff in general take a bite out of this stock as well. For more on BOH’s earnings, click here.

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