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What's going on?

Caterpillar has a certain swagger in its tracks, and it’s easy to see why: the construction equipment maker reported better-than-expected quarterly earnings on Friday.

What does this mean?

As global economies started to recover from the pandemic-driven slump last quarter, so did the essential infrastructural work that’ll get them back on their feet. Enter Caterpillar, which reported earnings that came in well ahead of analysts’ expectations. And sure, it was 22% lower than the same time the year before, but that’s a whole lot better than the 54% and 70% drops in the second and third quarters of last year.

All this is important because Caterpillar’s an economic bellwether. In other words, strong demand for its equipment is generally a good sign for the global economy as a whole. And demand does seems to be on the rise – enough that the company’s expecting stronger sales this quarter than the same (coronavirus-lite) time last year.

Why should I care?

For markets: Vaccination seemed so simple on paper.

Caterpillar’s stock is a “cyclical” one, which means its fortunes are closely aligned with how the wider economy is doing. Cyclical and cheap-looking “value” stocks have been surging in the last three months, but that’s stalled in recent weeks – probably because of (yep, we’re bored of saying it too) the pandemic. After all, a full-blown economic recovery is more likely to be delayed in light of all the new variants and vaccine difficulties. Investors, then, might be waiting to see real evidence of successful vaccination campaigns before they’re willing to go all in on cyclicals like Caterpillar.

Zooming out: Oil isn’t back yet.

Caterpillar’s investors might be hoping its oil company customers – which last year suffered the double-whammy of falling demand and lower prices – will bounce back soon too. But Chevron’s latest earnings don’t bode well: America’s second-biggest oil company reported weaker-than-expected results as lockdown restrictions continued to hammer consumption of the slippery elixir.

Originally posted as part of the Finimize daily email.

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