This morning the Atlanta Fed’s GDPNow tracker, which shows a meaningful uptick in Q2 activity is making the rounds:
— Atlanta Fed (@AtlantaFed) May 13, 2016
That seems to be in contrast to some thoughts out of Morgan Stanley’s strategy group, that shows a group of U.S. stocks, that should benefit from a pickup in economic activity act more like we are headed into a recession, as opposed to a sharp uptick in said activity:
I am trying to find out the components of this basket, but I suspect it’s a healthy dose of industrial stocks. Which brings me to Caterpillar (CAT), the poster-child for booms and busts in this post financial crisis world. CAT stock has been a mirror to both growth and growth shocks here and abroad.
CAT now sits an important near term technical support at $70:
This after being rejected at massive long term technical resistance at $80:
In 2016, analysts expect CAT to earn $3.55 per share, down 24% from 2015 (which was down nearly 60% from their 2012 peak of $8.64 at the height of the commodity super-cycle, sales peaked that year at $65.88 billion that year, and are expected to be $40 billion this year). While that is a stunning decline, I’d add that 2009 sales decline from the 2008 prior peak was about 37% ($51.3 bil to $32.4b) and then doubled in the next 3 years. Point here is that CAT sales could be close to a trough in 2016. But given the data out of China overnight, and possible signs that U.S. early cycle stocks act in contrast with the cautiously optimistic data on our shores, stocks like CAT likely test their prior lows at some point again in 2016.