Caterpillar (CAT) is of particular interest to us for two reasons: One, it sits prominently in our industrial sector allocation (7th largest position in XLI), two, its global sales results are one of the 86 data points that make up our PWA [Macro] Index.

CAT announced its quarterly results this morning and, despite beating analysts’ expectations on both the top and bottom lines, the stock traded down 3% on the day. Weaker than expected margins are clearly raising concerns that the company is attempting to boost sales at the expense of profitability. 


This will be one to watch as global trade conditions continue to unfold over the coming months. A tariff-eliminating deal with China would be a notably bullish development. As for the EU, the trading block has actually singled out CAT as a future (retaliatory) casualty should the U.S. go the tariff route in coming negotiations. We’ll keep a close eye on those developments!


As for what CAT’s latest sales say about the global economy, well, I’ll say decent.


Per the chart below (click to enlarge), worldwide sales growth looks to have bottomed (ironically, it peaked in January 2018, which is the month our macro index hit its all-time high), registering a slight upward tick versus last month. Breaking it down by region, sales improved in Asia, North America and Latin America, while contracting a bit in Europe, Africa and the Middle East.





The above essentially supports our view that general global conditions, while not what they were a year ago, remain expansionary…