Why Shares in CNH Industrial Slumped Today

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What happened

Shares in agricultural and construction equipment company CNH Industrial (CNHI -8.59%) were down nearly 9% as of 3 p.m. ET today. The move comes as part of a general sell-off in agricultural equipment stocks. In addition, construction equipment stocks like Caterpillar were weak today.

Data by YCharts

This probably comes down to good old-fashioned sector rotation among fund managers. Professional investors are rotating out of the so-called “inflation plays” in response to the Federal Reserve hiking interest rates to combat inflation. As such, the stocks that have risen in sympathy with rising raw material and commodity costs were sold off as investors switched to the stocks that have been beaten up due to rising cost inflation.

So what

This thinking is perfectly understandable with some highly cyclical stocks whose end market prospects rely on economic growth. However, it’s somewhat less warranted with stocks like CNH Industrial, whose primary earnings generator is agricultural equipment. Although crop prices (soybeans, corn, wheat, etc.) have also sold off recently, they are still all notably higher than when they began 2022. In addition, lower prices for more cyclical materials, a good example being steel, is good news for CNH Industrial. 

Now what

While the speculative money will always flow in and out of stocks and sectors, the underlying fundamentals haven’t changed much for agricultural machinery stocks. As such, don’t be surprised if CNH Industrial and the rest of the sector receive buying support soon. After all, regardless of interest rates, people and animals still need to consume crops. The sector remains a good hunting ground for investors.