Caterpillar (CAT) experienced a positive day in the stock market on Monday, in contrast to the wider market which saw declines. The NASDAQ and S&P 500 dropped while Caterpillar, along with several other Dow Jones index stocks, gained ground. The Dow Jones Industrial Average reached a new all-time high on Monday, continuing its strong performance from the previous week. This positive movement can be attributed to the US Durable Goods Orders data that was released on Monday, showing a significant increase in July orders compared to June.
The unexpected rise in Durable Goods Orders on Monday had a positive impact on Caterpillar’s stock performance despite causing tech stocks to sell off. This data suggests that the Federal Reserve may be less likely to cut interest rates at a faster rate. While Fed Chair Jerome Powell hinted at a rate cut during the September meeting, the market is now debating whether the first cut will be 50 basis points or 25 basis points. The news of a potential rate cut has affected tech stocks more significantly due to their reliance on interest rates for valuation, while industrials like Caterpillar, who sell durable goods, appear more attractive to investors.
The Equipment Leasing & Finance Association recently announced that US corporations increased their borrowing to purchase equipment by 14% year over year in July. The Monthly Confidence Index for the Equipment Finance Industry also saw a significant increase in August, reaching its highest level since February 2022. This positive outlook for business conditions is expected to lead to a rise in demand for funding for capex projects, fueling growth in the manufacturing sector.
Caterpillar’s stock is currently trading within a widening wedge pattern, which may cause some concern among traders. However, the stock has seen a rally since August 5 and is now above the 50-day Simple Moving Average (SMA). The bullish momentum indicated by the rising Relative Strength Index (RSI) suggests that there may be a retest of the overhead supply zone between $362 and $369. On the downside, the 200-day SMA near $322 and the descending lower trendline around the $300 psychological level could provide support levels for the stock.
In conclusion, Caterpillar’s positive performance in the stock market on Monday can be attributed to the strong US Durable Goods Orders data and the overall positive economic outlook. While tech stocks reacted negatively to the news, Caterpillar and other industrials benefited from the increased demand for durable goods. With the stock trading within a widening wedge pattern, traders will be closely watching for potential breakouts in the coming days. Investors should keep an eye on key support and resistance levels to gauge the future movement of Caterpillar’s stock.
