US stocks set for red open as Caterpillar slumps on earnings miss

Summary:

• Red open for Wall Street despite end of government shutdown

• Caterpillar shares fall sharply in pre-market after earnings miss

• Firm also says Chinese demand is lower

The last week was one of consolidation on the whole for US stock markets after a strong start to the year. News on Friday evening that the longest government shutdown in US history had been ended failed to provide a sustained push higher into the weekend and while the Dow (US30 on xStation) made a fresh 6-week high, the market did pull back somewhat into the close.

The US30 has rallied over 3000 points in the last month but the market could now be seen to have run into some resistance around the 61.8% fib retracement of the larger decline at 24855. This level is also not far from the 200 day SMA and their confluence can be seen to further heighten its significance. Source: xStation

The Dow is called to open lower by almost 200 points this afternoon, with one of the contributory factors being a large slump in the stock of Caterpillar after the construction machinery company delivered a disappointing trading update. According to the latest weighting for the DJIA, Caterpillar account for around 3.75% of the index. First off, adjusted earnings per share came in at $2.55, well below the $2.99 forecast on Wall Street, which means the 2018 financial year figure of $11.22 was at the low end of the company’s own range from $11-12.

“Sales in Asia/Pacific declined due to lower demand in China, partially offset by higher demand in a few other countries in the region,” the company said in its earnings press release. “Unfavorable currency impacts also contributed to the sales decline.” In addition the firm said that full year profit in 2019 is expected to come in the range of $11.75-12.75 which will likely mean a reading below the $12.73 median forecast according to a survey of analysts by Thomson Reuters.

The results are all the more disappointing after Caterpillar in October revealed its best third-quarter earnings per share in history and even nudged up its earnings forecast for the full year. However, this failed to cause a positive reaction with investors instead focusing on the impact of the US-China trade war, which led to $40m of extra costs for materials, by way of higher steel and aluminium prices as well as retaliatory action from trading partners. The stock is called to open lower by almost 6% in New York this afternoon.   

Share in Caterpillar are called to open sharply lower after a worse than expected set of figures and a downbeat assessment of future prospects. The market had recovered to trade back near the 200 day SMA but remains in a downtrend according to this metric. Source: xStation