One Simple Chart That Shows Why Caterpillar Is Getting Slammed

Until the cycle turns for emerging markets and commodities, there's not much Caterpillar can do.

The big news this morning is that Caterpillar, the maker of big machines for the mining and construction industries, is getting slammed. The company is reducing its outlook and cutting 10,000 jobs over the next four years. 

Shares are off over 6 percent in early morning trading, and are at their lowest level since August 2010.

So what's driving Caterpillar lower?

Source: Bloomberg

The chart offers a very simple hint. Caterpillar shares align very nicely with the MSCI Emerging Markets index going back for the last decade. At this point, everyone should be aware of the conditions driving emerging markets lower: The China slowdown, the commodity collapse, the end of a long-term bull cycle, etc. 

In the announcement, the company said it's feeling pain thanks to all the usual suspects:

"We are facing a convergence of challenging marketplace conditions in key regions and industry sectors – namely in mining and energy," said Doug Oberhelman, Caterpillar Chairman and CEO. "While we've already made substantial adjustments as these market conditions have emerged, we are taking even more decisive actions now. We don't make these decisions lightly, but I'm confident these additional steps will better position Caterpillar to deliver solid results when demand improves."

Caterpillar also noted that 2015 is the company's third consecutive down year for sales and revenues, and 2016 would mark the first time in the company's 90-year history that sales and revenues decrease four years in a row.

While the latest moves might help the company mitigate some pain, ultimately Caterpillar will only thrive once this big cycle turns. 

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