If I really knew the whys and wherefores of the stock market, I would be writing this article poolside in Hawaii. Sometimes the reasons for its ups and downs are crystal–clear, but the rest of the time it's confusing as hell.

At first inspection, the January through April period this year qualifies in the ‘confusing as hell’ category. American construction and mining equipment manufacturers, including the two major crane builders, are running at levels they could only dream of three to four years ago. The last seven or eight quarters have seen revenues records set, only to be broken three months later.

More recently, net profits have improved, with the rising cost of all the steel in those big lumps of iron being passed on down the line from manufacturers. But despite all this the stock markets have been on the slide since way back at the start of the year.

Q1 results from many of the companies in our specialty Heavy Equipment Index (HEI), not only showed these big gains, but in many cases net profits beat analysts’ already bullish expectations. The message from manufacturers was loud and clear–‘the equipment boom is still going, and this year we're making better profits from it.'

Good but down

Despite this good news, the HEI was down almost 8% in the January through April period. The Dow Jones Industrial Average and S&P 500 did better with 5.25% and 3.25% slides respectively, but the NASDAQ was hammered to an 11.4% net loss.

Slumps for these mainstream indexes have some explanation at least–there is an apparent slowing of economic growth, employment data is at best mixed, and the persistently high oil price is doing nothing for consumer confidence. It is not the right set of circumstances for growth, and crumbs of bad news like the disappointing Q1 results from bell–weather stocks like Exxon Mobil and IBM only compound the problems.

So while results for the equipment sector have been, let's face it, unbelievably good, share prices have been dragged down by wider pessimism. Even though results show the market for these companies’ products is still growing, the fact that they are cyclical (a kind of investor–speak way of saying they follow the overall economic cycle) means general bad news tends to have more weight than company–specific good news.

Well that's my take on it at least. If you have different thoughts, please e–mail to me at chris.sleight@khl.com

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