The Federal Reserve unexpectedly slashed its key overnight borrowing rate by 50 b.p. last week, following the committee’s gained confidence that inflation is moving sustainably towards its 2% target, whilst the overall labor market has been weakening. Such an aggressive move is historically uncommon and has only occurred three times since the 1990s, specifically January 2001 (tech bubble), September 2007 (financial crisis) and March 2020 (pandemic).
The dot plot shows that the central bank shall cut interest rates twice (total 50 b.p.) by the end of this year, while it will continue lowering its benchmark rate by a total of 100 b.p. and 50 b.p. respectively, in 2025 and 2026. Altogether, the overall rate cut is expected to reach 250 b.p., bringing the interest rate towards 2.75% – 3.00%. On the other hand, Fed Chair Powell emphasized that the decision is “a normal response to the current labor market environment”, and that the “current neutral rate is still significantly higher than the pre-pandemic level”, thus opening the door for various possibilities regarding the future interest rate path.
In the US stocks market, Producer Manufacturing is the biggest gainer for the week, at 5.26%. Among companies in this sector, Caterpillar, Inc., the second most valuable company (after GE Aerospace) with market cap over $178B, closed the week with over 7%. Caterpillar, Inc. is best known as the world’s largest manufacturer of construction, mining and other engineering equipment.
Caterpillar: Revenues & Earnings (After Deduction of Tax and Expenses). Source: Tipranks
The Caterpillar stock sees its recent relative strength (RS) rating at over 70. RS rating of 80 or higher typically indicates that a stock is in good condition to begin its biggest run. Last week, the company unveiled Dynamic Energy Transfer (DET) – a dynamic energy transfer solution for battery-electric and diesel-electric mining equipment, in addition to charging a machine’s batteries while operating with increased speed on grade, as well as improving operational efficiency and machine uptime.
In the previous quarter, Caterpillar Inc. reported revenue at $16.7B, down -4% (y/y) following lower sales volume and reduction of dealer inventory. Operating profit was down -5% (y/y) to $3.5B, dragged by the unfavourable sales volume, higher restructuring costs and SG&A/R&D expenses. Profit per share was down 3% (y/y) to $5.48. However, after adjustments, both operating profit and profit per share were up 2% and 8% respectively, at $3.7B and $5.99. Looking ahead, the management expected the sales revenue to be slightly higher compared to the first half of 2024, but operating profit margin to be lower. The company shall reveal its financial results for Q3 2024 on 29th October.
Technical Analysis:
#Caterpillar, Daily: The company share price remains traded in consolidation through the latter half of 2024. Its ATH was seen in early April this year, at $381.83, which is also the nearest resistance to watch. A break above this point may subject the bulls to continue testing $404, a 61.8% FE level. On the other hand, nearest support is seen at $344.50 (FR 23.6% extended from the lows in October 2023 to the ATH), followed by the dynamic support 100-day SMA and $321 (FR 38.2%). MACD indicator is still hovering in positive territory.
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Larince Zhang
Market Analyst
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