XLI - Deere's 11% weekly loss is biggest among large-cap industrials

2023-04-06 18:03:43 ET

Deere’s ( NYSE: DE ) stock slumped almost 11% during the holiday-shortened week as many companies in the industrial sector faced selling pressure on signs of economic weakness. The stock market will be closed tomorrow for Good Friday.

The Industrial Select Sector SPDR ETF ( NYSEARCA: XLI ), whose holdings include the biggest U.S. companies in the manufacturing sector, fell 3.4% to the lowest in two weeks. The Dow Jones Industrial Average ( DJI ) rose 0.6%, while the Nasdaq Composite ( COMP.IND ) declined 1.1% and the Standard & Poor’s 500 stock index ( SP500 ) slipped 0.1%.

Economic Clouds

Investors pored over several troubling reports this week. ADP's measure of private employment showed that payrolls in March expanded by 145,000, less than the 200,000 estimated by Wall Street economists. Job openings in February dropped to fewer than 10 million for the first time in almost two years.

The Institute for Supply Management reported that its manufacturing index was less than 50 – the threshold for growth or a decline – for the fifth straight month in March. Last month’s reading of 46.3 was the lowest since May 2020, when pandemic lockdowns were wreaking havoc on the global economy.

A similar U.S. manufacturing index tallied by S&P Global hit 49.2 in March, also less than 50 for the fifth month in a row.

Machinery Companies

The data pressured makers of heavy equipment whose revenue typically is sensitive to economic cycles of recession and recovery.

Deere ( DE ), the world’s biggest maker of farm machinery, sold off for three days straight this week to hit a five-month low. Its stock hit a 52-week high in late November, and has given up about 18% of its value since then.

Caterpillar ( CAT ), the biggest maker of construction and mining equipment, slumped 8.6% to also hit a five-month low. Its stock touched a 52-week high in late January, and has fallen 22% in the past couple of months.

Analysts at Baird last week downgraded Caterpillar ( CAT ) to Underperform amid concerns that construction activity will slow down as financing from regional banks becomes harder to obtain. The collapse of Silicon Valley Bank (SIVB) and Signature Bank ( OTC:SBNY ) last month exposed the weakness in their balance sheets.

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