Caterpillar Leads Selloff as Industrials Sink on Growth Concern

  • Group testing August low as China slowdown takes toll
  • Caterpillar falls to five-year trough after cutting forecast

Stock investors looking for fresh evidence of a slowing global economy didn’t need to search far today. News from Caterpillar Inc. and the latest data from Washington were all it took.

The Standard & Poor’s 500 Industrials Index fell for a third consecutive day, briefly trimming its rebound from an August low to less than 1 percent, as Caterpillar said it reduced its sales forecast and cut jobs in response to a slowdown in the mining and energy industries. U.S. bookings for capital equipment slid in a sign companies are weighing just how badly weaker global growth will affect manufacturing demand in the U.S.

The pace of global growth has come back into focus after the Federal Reserve on Sept. 17 held interest rates near zero on concern that financial-market turmoil and the slowdown in China may harm economies from Europe to America. Global equities have fallen every day since the announcement, while U.S. stocks have declined in five of six sessions.

Materials and industrial companies “are heavily leveraged to economic growth and they’re feeling it here,” said Tim Ghriskey, chief investment officer who helps oversee $1.5 billion at Solaris Asset Management. Both groups are big exporters, and as the economies in China, Japan and Western Europe slow or even turn negative, that’s weighing on these stocks, he said.

As industrials stocks test a key threshold, the weakness in China has taken its toll in another economically-sensitive industry. The S&P 500 Materials Index is the first of the 10 major groups in the benchmark gauge to sink below troughs set on Aug. 25, a level that marked the worst of last month’s selloff and one closely monitored by chart watchers.

“There’s a bit of panic selling in the market,” Ghriskey said. “Back in August the concern wasn’t so much about the global economy, but now we hear people using the word recession again and just mentioning that word scares some investors.”

Caterpillar fell 6.3 percent to close at $65.80, the lowest level since August 2010. The world’s biggest maker of mining and construction machinery said it will cut as many as 10,000 jobs over four years. The news rippled through the industry, sending Deere & Co. down 2.5 percent in a seventh day of losses. Joy Global Inc., the worst performer in the Standard & Poor’s 500 Index this quarter, lost 1 percent on its way to a 2008 low.

The recent equities selloff has left about one-third of S&P 500 members below their August lows. Technical analysts see a breach of that threshold as a signal that sentiment has shifted and selling may persist. Aside from industrials, financial and phone stocks are the other groups testing recent troughs, with losses leaving them within 1.2 percent of the threshold.

While industrial companies as a group have yet to breach the Aug. 25 low, 26 of the industry’s 66 members have fallen past the level that marked the bottom of the broader market’s 10 percent selloff over four days last month.

Caterpillar generates more than half its revenue outside the U.S., while overseas business makes up almost 70 percent of revenue for Joy Global, whose shares have lost two-thirds of their value this year.

The export-oriented industrial and materials industries are plagued in part by the stronger U.S. dollar, said Phil Orlando, who helps oversee $360 billion as chief equity-market strategist at Federated Investors Inc. in New York. Add to that the weakness in demand abroad and the result is a group that’s been under pressure for several months, he said. “One piece of the domestic puzzle that’s not working is manufacturing.”