Industrial Stocks Sink 2.2% as Treasury Yields Hit 24-Year Highs
On Wednesday, October 7, Caterpillar fell 5.7% and the industrial fund closed down 2.2% even after the 10-year yield fell back to 5.28%.
Key takeaways
XLI, the primary ETF tracking the Dow Jones Industrial Average, fell 2.2% on Wednesday and closed near the daily low. At one point, XLI was down as much as 2.5% on the day. Overall, XLI has fallen 7.3% over the last three months.
SPY, which tracks the S&P 500, recovered from a 0.7% loss to finish down 0.2%, while XLV, which holds the health-care companies in the S&P 500, rose 1.0%.
Industrials were the day's worst sector
The 10-year Treasury yield touched 5.36%, the highest since April 2002, before receding to 5.28%, almost unchanged from Tuesday, after the Treasury sold $39 billion of 10-year notes at a yield of 5.30%.
That suggests the intraday spike was not the main source of pressure, but it does not clear the yield entirely: the closing rate was still at a 24-year high, and borrowing costs at that level weigh on capital-intensive companies whether or not the rate moved much during the day.
Caterpillar, XLI's largest holding representing 7.3% of the fund's market cap, fell 5.7%, and single-handedly accounted for about 0.4 percentage points of the sector's overall 2.2% decline. CAT led the industrial's decline, and helped drag the Dow down 341 points, to 51,180.
The drop was broader than Caterpillar
The loss was already in by late morning. At 11:57 a.m. Eastern, 24/7 Wall St had Caterpillar down 6% and blamed long-term borrowing costs. By noon the 10-year yield was back below 5.32%, and Caterpillar still closed down 5.7%, a fraction off that morning print. The yield kept easing after that. The stock did not follow.
The Motley Fool's midday note told a different story. It blamed an analyst downgrade and worries about artificial intelligence for Caterpillar, and a federal inquiry for Deere. The Federal Trade Commission and the Department of Agriculture asked the public to comment on farm-equipment markets, including possible limits on competition. The news knocked Deere down 3.8%, while other farm equipment companies AGCO and CNH Industrial each fell 6.1%.
But Barron's reporting tied Caterpillar to the inquiry, even though Caterpillar's business is not closely tied to farm equipment at all.
Meanwhile, Zacks had cut Caterpillar from "strong buy" to "hold" on Monday, before Wednesday's drop.
We would not call Wednesday a yield story. The farm inquiry fits Deere, AGCO and CNH, but not Caterpillar, and the write-ups still do not agree on that stock.
ETFs in this story
Frequently asked questions
How high did the 10-year yield get?
It touched 5.36%, the highest since April 2002, then ended at 5.28%, almost unchanged from Tuesday.
Was the drop just Caterpillar?
Caterpillar, 7.3% of the fund, fell 5.7% and accounted for about 0.4 points of the 2.2% decline, and still not most of it.
Did shares bounce once the yield fell back?
No. By noon the 10-year was back below 5.32%, and Caterpillar still closed down 5.7%.
Was Wednesday a yield story?
The article would not call it one: the farm inquiry fits Deere, AGCO and CNH, but not Caterpillar, and the write-ups still do not agree on that stock.
