Sasha Cekerevac: With the S&P 500 (NYSEARCA:SPY) hovering around its all-time highs, I think it’s quite interesting to read some of the latest corporate earnings reports and get a sense of what’s really happening in the global economy.
One of the most international companies within the S&P 500 is Caterpillar Inc. (NYSE:CAT). The firm recently released its third-quarter 2013 corporate earnings report, in which the firm poured some cold water on expectations. Revenue during the quarter was down 18% year-over-year, and corporate earnings were down 44% year-over-year. (Source: Caterpillar Inc., October 23, 2013.)
That’s not even the worst part. The company also brought down guidance for both revenue and corporate earnings for the foreseeable future.
In its corporate earnings release, Caterpillar cites several issues that it’s worried about, including uncertainty regarding U.S. fiscal and monetary policy, the health of economic regions globally (including the eurozone and China), and a lack of demand from customers.
Because revenue and corporate earnings growth is questionable, the company is taking the only smart action it can—reducing its own cost base. Obviously, no company can force a customer to buy their product, but it can keep its operations as lean as possible. To that end, the firm has cut 13,000 jobs globally over the past year, reduced pay and incentives, and initiated the “implementation of general austerity measures across the company.”
Considering Caterpillar is a large firm within the S&P 500 and it has its fingers on the pulse of the global economy, do any of these comments give you hope or confidence that either the domestic or international economies are about to surge upward in growth? Not to me, it doesn’t.
This is where I raise serious questions about the strength and health of the S&P 500. Caterpillar is one of the largest international companies, a component of the S&P 500, and would not be issuing such a weak forward guidance regarding potential for corporate earnings growth unless management was truly concerned about the future.
Chart courtesy of www.StockCharts.com
I think that the chart above, which places the price of Caterpillar against the price of the S&P 500 (black line), is very interesting. From late 2006 until early 2008, the S&P 500 moved far ahead of the price of Caterpillar. Then, there was a convergence and both the S&P 500 and Caterpillar literally moved lockstep until the middle of 2010, when Caterpillar outperformed.
From 2010 until mid-2012, Caterpillar continued to diverge from the S&P 500, primarily due to the strong corporate earnings gained from selling equipment to mining companies. Currently, the S&P 500 has continued moving higher, while Caterpillar has stalled.(...)Click here to continue reading the original ETFDailyNews.com article: What Caterpillar Inc.’s (CAT) Big Drop In Earnings Means For The General Stock MarketYou are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)
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