3 Blue Chip Stocks That Missed the Market Rally

Despite a turbulent start to the year that shook the broader stock market off its late-January highs, equities are making a comeback and are now showing positive overall gains so far in 2018. Unfortunately for a number of laggard blue-chip stocks, the recent market rally is leaving them in the dust. As worries over a global trade war dampening economic growth weigh on investor sentiment, industrial multinational companies Caterpillar Inc. (CAT), Honeywell International Inc. (HON) and 3M Co. (MMM), after achieving spectacular gains in 2017, are negative on the year and still very much trading in correction territory, according to a column appearing on CNBC.com.

3 Stocks Left Behind

Stock   % Below 2018 High
Caterpillar        -9.5 %
3M        -21.2 %
Honeywell        -9%
S&P 500        -3.9%

Source: Yahoo! Finance

Threatening Surprises

Optimism over “synchronized” global economic growth around the world abounded in the early months of this year, but already signs of slowdown could be seen in global purchasing mangers’ indexes (PMI). While the numbers indicating manufacturing and service activity are still solid, they are slowing and down from relatively high levels. Since 1990, every period in which the global economy attained synchronized economic growth it was soon followed by some sort of economic surprise, according to HSBC Holdings, as reported by Bloomberg.

While the U.S.’s own manufacturing index ticked upward last month, showing signs of strength, possibilities for economic surprises appear to be rising, whether they be from Italian political tensions in the eurozone, controversies over sanctions on Iran or even U.S. tariffs that could ignite a global trade war. (See also: Trump’s China Tariffs: What’s at Stake for the US?).

Both the OECD and International Monetary Fund have issued optimistic forecasts about global growth, but have highlighted a global trade war as a significant downside risk. Despite increasing tensions between Washington and Beijing, markets have remained relatively calm. But the ramifications for global trade and growth would be substantial. S&P Global’s chief economist predicts a drop in global GDP growth of around 1% if threats escalate into a tariff war, while the ECB predicts a 1% hit to growth in just the first and a 3% hit to global trade, according to a separate article from CNBC.

U.S. Industrial Multinationals

Amid the threat of a global trade war, some U.S. blue-chip multinationals are showing signs of slowing down after last year’s robust performance. Caterpillar’s year over year first quarter sales revenue slowed to 4% from the previous quarter’s 6%. While the company posted an earnings beat of $2.82 per share versus forecasts of $2.13, the weaker sales growth prompted Bank of America Merrill Lynch to downgrade the stock’s rating to neutral from overweight, and executives noted that first-quarter earnings would be Caterpillar’s “high-water mark” for the year, according to CNBC. (See also:  Caterpillar Stock Could Test 2018 Lows).

Although also outperforming analyst forecasts in the first quarter, shares of 3M were hurt by management’s forward guidance that they expect organic growth to slow throughout the year. Jefferies analyst Laurence Alexander downgraded the company from buy to hold in the middle of last month, citing rising interest rates and the aging economic cycle that increases the risk of a recession as factors for the downgrade, according to Barron’s.

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