Why Caterpillar Stock Is Down By 6% Today

Caterpillar Stock Falls As Traders Focus On Rising Costs

Shares of Caterpillar gained strong downside momentum after the company released its quarterly report.

The company reported revenue of $13.8 billion and adjusted earnings of $2.69 per share, beating analyst estimates on both earnings and revenue.

While the headline numbers were strong, the market focused on cost headwinds which put pressure on margins.

The market is worried about the negative impact that higher inflation will have on stocks and businesses in 2022, so it’s not surprising to see that investors are sensitive to any indications of rising costs.

These worries have already put significant pressure on Caterpillar shares today as the stock is down by 6% and is currently trying to settle below the $200 level.

What’s Next For Caterpillar Stock?

The market demand for Caterpillar products remains strong, and the key question is whether strong sales would offset the negative impact of higher costs in 2022.

The market has been very nervous since the start of this year, and S&P 500 is down by about 10% from all-time high levels. In such environment, traders are sensitive to bad news.

In the near term, inflation expectations could have a significant impact on Caterpillar stock. The market is worried that costs will rise faster than Caterpillar could offset them with higher pricing, which will put more pressure on margins and, therefore, on the company’s financial results.

Currently, analysts expect that Caterpillar will report earnings of $12.39 per share in 2022, so the stock is trading at 16 forward P/E, which looks reasonable for the current market environment.

However, it remains to be seen whether speculative traders will rush to buy Caterpillar shares amid rising yields and inflation fears. In case Treasury yields continue to move higher and the market begins to price in more than 4 rate hikes in 2022, Caterpillar and other infrastructure stocks may find themselves under more pressure.

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