News and analysis

Construction equipment maker Caterpillar (CAT) is back in the spotlight, just being stuck in a phase of disappointing pullback, less than a week after the recent hit to its historical high at $441.15. I described many signs of the firm's long-term strength about one year ago, in early August 2024. At that time, the stock was trading at $325+ then quickly added more than 25% to its market value to knock several times at its next saturation ceiling area above $410 in winter. Next, it was back at $325+ once again by early April after the crowd mostly decided to fix profits. The further launch of protracted tariff battles provided CAT buyers with excellent bottoms under $270, followed by a creeping 65% rally in less than four months. That was unparalleled for the entire industrial segment during this year, and now the quarterly earnings gave it a reason to wallow into a rather fast but probably short-lived correction.

Caterpillar share price lost initially 3% to below $420 on the pre-market on Tuesday, as solid demand for energy and construction equipment to repair pretty worn infrastructure of U.S. roads, bridges and transhipment hubs led the stock to nearly repeating of its absolute revenue record at $16.6 billion vs consensus estimates of $16.27 billion, but failed to generate the appropriate profit margin as the company announced its Q2 EPS (equity per share) of $4.72 only, $0.18 worse than the average expert forecast of $4.90. This meant they sold more energy and transportation equipment for example, at higher prices for customers, but growing inner costs and tariff impact reduced net income. The company CEOs admitted they suggest net incremental tariffs of approximately $1.3 billion to $1.5 billion for the full year of 2025, with $400 million to $500 million expected in Q3 already.

I don't think this should be a reason for sentiment to reverse, so that the asset would barely dive below $400, and even the range near last winter's highs (between $410 and $420 per share) could serve well as new support. If a one-off drop below $400 does happen, then my worst-case scenario is that the bottom could be around $380, but that's not the base case. The company's potential to participate broader in power generation and data centre building may also help to overcome some current challenges in earning more money on its traditional construction and mining machines businesses where it is still a pure global leader. Thus, I prefer to keep driving my cautiously optimistic way concerning Caterpillar. Consider resuming a Big Long strategy here rather sooner than later - perhaps in a couple of weeks or so, once the dust from quarterly report would settle a bit.

It's also worth noting that earnings may not have jumped as much as Wall Street expected, and are still far from last year's ideal of $6 per share, but still it rose by 18% QoQ despite all tariff headwinds and other economic uncertainties. Its operating profit even added 18% YoY, while adjusted operating profit (corrected by currency fluctuations) climbed 22%. Caterpillar has strong cash flow, at $2.4 billion in its Machinery, Energy & Transportation segment in Q2 2025, only slightly below the $2.5 billion generated in a very successful and record-breaking Q2 2024. Here is also another 7% increase in Caterpillar's quarterly dividend, in the 5th consecutive year with a high single-digit quarterly increase in payment for shareholders. As to the company's forward guidance, it expects 2025 sales to be "slightly higher" vs 2024, compared to its previous quarter’s estimate of "flat to slightly down" which did not prevent CAT shares from rallying in the previous three months.

Neo (NEO) is rising by 3.6% to $6.06 this week, outperforming Bitcoin (BTC), which is up just 0.2% to $114,581. The crypto market is showing signs of recovery after last week’s sell-off. Neo recently dropped to a strong support level at $5.00 and quickly found footing for a rebound. This level has only been touched five times in the coin’s history, each time resulting in a significant bounce. With improving market sentiment, Neo appears well-positioned for a strong move upward, potentially targeting the nearest resistance at $10.00.

The S&P 500 broad market index has entered a potential correction zone after nearly touching the uptrend resistance at 6,450 points. The last time the index approached a similar resistance range of 6,000–6,100 points, during December 2024 to January 2025, it declined by 21.6% over the next three months, falling to 4,800. While trade tensions between the U.S. and China are once again in focus, a correction of that scale appears less likely this time. However, a pullback remains possible. I am planning to open a short position in the 6,320–6,370 range, targeting a move toward 6,050–6,100 points, which would represent a standard 5.0% correction. A stop-loss can be placed at 6,600.

The sharp correction on the very first day of August made the S&P 500 broad barometer touching the 6,212 mark following a historical record high of above 6,435 only one day before. However, we do not suggest this will last long. This is quite clear because the reason to fall lies solely in the US economy markers, while the market flagships are global businesses with revenue and profits are largely derived from many part of the world.

Moreover, the whole set of labour market data released on August 1 is not a simple reflection of weaker hiring, but also a welcome sign for markets. Indeed, such a slowdown in new jobs should prompt the Federal Reserve to lower its interest rates at last, as they are too high at 4.25% to 4.50%. More than 80% of traders now expect a cooling labour market to push Fed's chair Jerome Powell and his colleagues to cut rates no later than their September meeting, according to FedWatch data. This is exactly what the entire investment community had been waiting for a long, long time, whereas before the August 1 data, the number of traders betting for such an outcome from the September meeting was only about 37%. Getting much more "cheap" money to borrow is revolutionary for the market investment process, helping to reignite the rally even if it fades. Thus, the so-called economic negative from the labour market is a positive in a purely investment context.

Interestingly, the U.S. Bureau of Labor Statistics (BLS) seems to have done a necessary job to shift the Federal Reserve's opinion that the president Donald Trump has so far failed to achieve with his threats to fire Fed's chair Jerome Powell. However, BLS commissioner Erika McEntarfer immediately paid with her job as Trump accused her of faking the jobs numbers. Trump called for new leadership in BLS after its rather shocking manner of a downward revision showing as much as 258,000 fewer jobs created in May and June than it has been previously reported.

It is understandable that data updates could happen as some firms are created or go out of business, and the Bureau doesn't really know that during the course of the last month, until it reconciles the incoming data vs a real full count. Yet, growing concerns about the quality of the U.S. economy started, since any re-evaluations should still have reasonable limits, and the agency was apparently at least slow in summing up the results. The BLS reportedly surveys over 120,000 U.S. employers each month to seek their payroll employment during the week in which the 12th day of the month falls, but the response rate went down over the last several years from 80.3% in 2020 to about 67.1% this year.

Nevertheless, re-estimates in the August 1 release were enormous by historic standards. The downward revision of 125,000 jobs for May was the largest between a second estimate and third estimate since a 492,000 special COVID time case, reported in June 2020 for the payrolls report for May 2020. Friday’s revision was the largest for a change from the second monthly estimate to the third estimate since a 127,000 job downward revision in as early as March 1983, according to BLS own data.

All this is not harmless at all, and if such a significant cooling of the labor market had been signalled in sync with time, then the Fed could have been moved to reduce the interest rate already in July, without waiting for the fall season. However, better late than too late. Weaker jobs numbers contributed to rate cut hopes. That's why Wall Street has quickly recovered. The crowd has eagerly begun to buy fresh dips after last week's pullback, rising more than a full percentage point above 6,300 already in the first hour of regular trading on August 4. All this shaking has only given us and other bulls better prices for a while which may serve to propel the market higher for a longer period. So, all of our previous estimates of early targets above 6,750 and then above 7,000 for the S&P 500 over the coming months of 2025 and early 2026 remain valid.