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Investors were betting that Caterpillar would continue to spread its wings and fly even higher. But the heavy equipment manufacturer reported ‘meh’ earnings this morning—signaling that the industrials sector, which has been one of the best-performing parts of the market this year, might be stalling.
Caterpillar’s earnings per share came in at $4.72, missing projections of $4.89. On top of that, its operating profit plunged 18% to $2.86 billion, while its profit from its construction business dipped 29%. The reason for the rough quarter is, of course, President Trump’s tariffs, which raised manufacturing costs, according to Caterpillar.
Despite the rough news, Caterpillar shares squeaked out a 0.12% gain today, given the company increased its revenue projection slightly for the full fiscal year. In addition, investors are optimistic that Caterpillar’s power generation business will get a boon from the AI buildout.
That’s not all: Power equipment provider Eaton dropped 7.36% today, despite beating top and bottom line earnings expectations. The reason was its guidance: It forecast earnings per share of between $3.01 and $3.07 in Q3, which was below expectations of about $3.09 per share.
And aerospace industrial firm TransDigm fell 11.94% after missing top and bottom line earnings projections, in addition to cutting its annual revenue forecast.
The canary in the coal mine?
With all the attention on big tech and AI, you may not know that the industrial sector, which includes construction, aerospace, and other machinery companies, has been on a tear this year. While the S&P 500 has only risen 7.1% in 2025, the Industrials Select SPDR Fund is up 14.45%.
One factor driving the sector’s boom is the performance of aerospace and defense stocks specifically, due to heightened investment during ongoing geopolitical conflict. Investors are broadly banking on a White House that is focused on re-shoring manufacturing.
But tariffs are complicating the picture, making it harder for some of these companies to ramp up production when they don’t know what the next levy will be. Also, a big part of the industrials sector is composed of airlines, freight and logistics, and trucking companies—businesses that will suffer from a consumer spending slowdown and economic downturn, which may still be in the cards given recent jobs data.
In spite of today’s news, Caterpillar, Eaton, and TransDigm all have positive consensus ratings from analysts who cover the stocks. But whether or not the cyclical sector they’re all in is about to take a turn for the worse remains to be seen.—LB