Turning point?

07 March 2008

Last year saw the markets face highs and lows. Several key indexes, including the Dow, hit record levels over the course of the year. At the same time, the sub-prime crisis put a huge dent in confidence and sent share prices tumbling on several occasions.

There was a lot of volatility in the markets as the year wound down, despite this being a period of fairly light trading. Volumes in the heavy equipment sector for example were less than half their usual level during the few days of trading over the Christmas and New Year period, but at the same time it moved in a wide 10% band.

Despite the unusually sharp ups and downs that occurred at the end in December, the net effect on the heavy equipment sector was negligible. As a result, ACT's Heavy Equipment Index (HEI) stayed well in positive territory compared to a year ago.

As the graph shows, the HEI has hung onto gains of around 40% for the year to January, while the best-of-the-rest among mainstream indicators is the NASDAQ, which is up about 10% over the same period. The Dow was some way behind with a 6.24% net gain, while the S&P 500 was up just 3.25% in 12 months.

Still, after the difficult final five months of 2007, when the sub-prime crisis and subsequent credit squeeze hammered the banking sector, any gain is an achievement. The question now is whether the markets can hang onto these gains, let alone continue to grow. With a slowing economy, and difficulties lingering in banking, a decline rather than growth is the likelihood for the first part of this year.

“As a result, ACT's Heavy Equipment Index stayed well in positive territory compared to a year ago.”

Equipment shares

That could well cause problems for equipment companies' shares, particularly those at the light end of the market with heavy exposure to the residential sector.

On the other hand, economic prospects outside the US are still pretty good Equipment manufacturers with an international footprint and involvement in booming sectors like mining have a much brighter outlook.

Of all the various sub-sectors of the industry, cranes look among the most promising. Manitowoc, for example, has seen shares continue to rocket in 2007, at the same time as the wider markets were diving. A share issue in December helped it round-out 2007 with a stock market valuation of more than $ 6 billion – about 75% more than its position 12 months previously.

With long lead times in the equipment industry, particularly for big machines like cranes and mining equipment, there is cause for optimism about the sector. Any slowdown in the wider economy will of course have an impact, but there are factors like these that could help mitigate.


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