15
AUGUST 2013
ACT
BUSINESS NEWS
AUTHOR:
CHRIS SLEIGHT
is one of
the world’s most internationally
renowned construction
business writers, with
specialist expertise in financial
markets and stock market
analysis. He is editor of KHL’s
market-leading
International
Construction
and is a regular
contributor to
ACT’
s
sister publication,
International Cranes
and Specialized
Transport
.
The stock market
rally of the last
12 months looked
like it was starting
to gently in mid-
summer, but
the equipment
sector dropped
like a stone.
Chris
Sleight
reports.
N
ews that the Fed
was thinking
about gently
phasing out quantitative
easing (QE), the ‘money
printing’ stimulus measure
that has helped keep the
economy afloat in recent
years, was enough to knock
stock markets off the growth
path they had been on
for more than a year. Late
June and July saw the Dow,
NASDAQ and S&P 500 fall
back from their recent highs.
Whenever there is a stock
market rally, the one certainty
is that there will be a fall
back in prices afterwards. In
one sense this is part of the
definition – the fall in prices
marks the end of the growth
period, and if shares don’t
go back down then the rally
hasn’t ended yet.
Although there was some
day-to-day and week-to-week
volatility in the markets, taken
over the longer term – our
graph illustrates a year of
stock market changes – the
downturn looked relatively
mild. All three major indexes
remained more than 15
percent ahead of where they
were 12 months ago, and after
the initial drop, there seemed
to a rebound.
Not so for the equipment
sector, as represented by the
ACT
Heavy Equipment Index.
When the major markets
turned it dropped like a stone.
Credit tightening
One of the issues for the
sector was that it had more
than just the domestic
situation to contend with.
June also saw the Chinese
Central Bank announce a
series of credit tightening
measures. It remains to be
seen how this plays out, and
China does have a good
track record of managing its
economy. However, investors
were understandably spooked
at the prospect of another
credit crunch.
Although the biggest
negative effects of this
downturn were seen on
the Chinese stock markets,
ACT Heavy Equipment Index (HEI)
DOW
NASDAQ
S&P 500
25%
20%
15%
10%
5%
0%
-5%
-10%
% change
52 weeks to July 2013
there was a knock-on effect
for many U.S. equipment
manufacturers, which do
significant business in China.
Another factor weighing
on the equipment industry is
the general global economic
malaise. As a cyclical business,
the sector needs robust
economic growth for sales
to take off. Although there is
growth in the world economy,
it is not strong enough to tip
the scales for the sale of big-
ticket items like cranes and
earthmoving equipment.
The knock-on effect of this
is that in such an uninspiring
environment, bad news about
the global economy seems
to weigh particularly heavily
on the industry. On the other
hand, there is not enough
good news around (or it is not
positive enough) to really lift
the sector out of the doldrums.
Hence the current situation,
where many equipment
manufacturers’ share prices
seem to be suffering the
downturns without enjoying
much of the upside.
■
ACT’
s Heavy Equipment Index
(HEI) tracks the performance
of eight of America’s most
significant, publicly-traded
construction equipment
manufacturers – Astec
Industries, Caterpillar, CNH,
Deere & Company, Joy Global,
Manitowoc and Terex.
Rally retreats
