Caterpillar is the world’s largest maker of construction and mining equipment, engines, and turbines. Think bulldozers, excavators, dump trucks, and the massive equipment that my kids love.
Investment in that kind of equipment is telling. It offers visibility into whether companies, miners, and builders are willing to spend real money on the future. When they step up, you’ve got green shoots. When they pull back, the global economy is already slowing.
Shares of Caterpillar are currently signalling an acceleration in the global economy as government stimulate in response to the US trade war.
Caterpillar is a classic global growth barometer as it operates in 190 countries and is particularly leveraged to China. Its turn signals an improvement in China growth prospects that's also underscored by the rally in Chinese equity markets this year.
A pickup in CAT’s China sales = “Beijing stimulus is working” trade but it's also leveraged to the rest of the world, including the US where infrastructure investment is strong and company capex has been lifted by accelerated depreciation. Rate cuts should also drive improved house construction, which is currently at cycle lows.
All told, the rally in Caterpillar shares is a great sign for the economy and the broader stock market. It argues that the rally should extend beyond technology and that's something that's happening today with the Russell 2000 up 2.30%.
