Earnings Season Talking Points:
- Often viewed as a bellwether for global economic activity, Caterpillar’s miss coincides with mounting concerns of slowing global growth
- Chip-maker Nvidia lowered guidance on similar concerns, acting in lock-step with Apple who is due to report earnings on Tuesday
- Caterpillar and Nvidia are the newest members to the growing list of corporations that have highlighted slowing global growth, particularly in China, for their poor performance
Industrial and Dow Jones giant Caterpillar (CAT) dragged the index lower on Monday after it dropped roughly 9% on missed earnings. Revenue read in at $14.34 billion, slightly below the expected $14.37 billion. Earnings per share similarly disappointed, $2.55 versus $2.98 expected. The company highlighted slowing economic growth as a headline concern for their miss. More specifically, Caterpillar noted a slowdown in China as a factor for lower revenue in the coming quarters. The warning aligns with factors outlined by chip-maker Nvidia.
Caterpillar Stock Price (CAT), 1 – Hour Timeframe January 15th – January 28th (Chart 1)
Similarly, Nvidia (NVDA) lowered guidance on Monday and echoed concerns of slowing global growth. The California based chip-maker subsequently cratered and traded over 15% lower as the revision crossed the wires. The company revised revenue expectations lower for the fourth quarter from $2.7 billion to $2.2 billion. They are scheduled to report earnings on February 14th.
In an increasingly common occurrence, Nvidia cited “deteriorating macroeconomic conditions, particularly in China” for their revision. In the same sector Micron (MU) and Advanced Micro Devices (AMD) traded lower, joining in on Intel’s (INTC) decline after the memory maker missed earnings last week. Similarly, AMD will report their fourth quarter earnings Tuesday after market close. Follow @PeterHanksFX on Twitter for live updates and analysis of earnings reports.
Nvidia (NVDA) Stock Price, 1 - Hour Timeframe January 17th - 28th (Chart 2)
Caterpillar and Nvidia join the likes of Apple, Intel, Daimler and others that have highlighted slowing global growth with an explicit mention of China as a reason for their earnings miss. Apple will report earnings on Tuesday and investors will look to a follow-up of their recent revenue revision and subsequent USDJPY flash crash.
Dow Jones Price Chart, Daily Timeframe January 2018 – January 2019 (Chart 3)
While a similar reaction in the Dollar or Yen is highly unlikely, look for a broad-market reaction to Apple’s report. Today, many market participants believed Caterpillar and Nvidia were to blame for the moderate Dow decline. While sizable, their market capitalizations account for roughly 21% of Apple’s when combined. Thus, it would be reasonable to expect an even larger reaction in the overall market if Apple delivers below their recent revision. Look for a reaction in forex, particularly in safer currencies, if earnings miss their target substantially.
Other FANG members Facebook and Amazon also report earnings this week, FB on Wednesday and AMZN on Thursday. They will join Netflix in the reported category while Google remains the sole-unreported member. Microsoft, now the world’s largest company by market cap, reports Wednesday after the close.
--Written by Peter Hanks, Junior Analyst for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX
Read more: Will the Stock Market Crash in 2019?
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