Sector rotation appears to be the order of the day as tech stocks continue to face selling pressure while banks, energy and material stocks post gains. At the close the Dow was off 144 points on lighter trading volume to end the day at 25,306.
Caterpillar reported earnings and the market reacted with a smile. Cat posted revenue that was 24% higher than last year and net income which was up 99%. Revenue was below estimates while profits were above expectations. By segment, Cat saw strength in resources with sales up 38% followed by transportation up 25% and construction up 24%. The company had positive forward guidance and increased its common stock dividend by 10% which beats a poke in the eye with a sharp stick.
Oil prices have moved back above $70 per barrel. Demand for oil on a global basis remains stable but supply could see disruptions as sanctions against Iran are set to be phased in starting August 6th. While Saudi Arabia is trying to produce more oil, there is worry that Iranian sanctions could pull upwards of 2 million barrels per day from the supply chain. Meanwhile Iran’s currency fell about 50% since April thanks to a weak economy, troubled banking system and Iranian’s stocking up on dollars ahead of the sanctions.
Lumber prices continue to fall since the June high. The Framing lumber index fell to $491 and has now been down for 7 straight weeks. Last year at this time the index was $428. It appears that supply has caught up with demand particularly in the OSB markets as mills crank out product while housing has slowed down a bit.