The macro and the micro seem to be diverging, at least for the moment.
Equipment-manufacturing and -retailing companies are building inventory levels ahead of what they expect to be strong fourth-quarter demand, Morgan Stanley analysts say.
This after a downbeat economic data point in September: The ISM Manufacturing index showed contraction. The reading was 47.8, missing estimates of 51. Any figure below 50 means activity in the sector is contracting.
"Our latest U.S. construction-dealer survey indicated that dealers are building inventory ahead of an expected reacceleration in fourth- quarter retail demand," wrote analyst Courtney Yakavonis in a Wednesday note.
"General upbeat commentary from the construction channel at Laguna stands increasingly at odds with the hard and soft industrial data seen in recent months."
The analyst recently met with management teams in Laguna Beach, California.
Yakavonis said management commentary was particularly positive from United Rentals (URI) - Get Report , Willscot (WSC) - Get Report and John Deere. (DE) - Get Report (Deere produces, but does not retail, heavy equipment.)
The broader market, especially more cyclical stocks, has sold off in the past month (DJIA down 2.08%) on concern that global economy is weakening. United Rentals shares have fallen yet more in that period, down 7.5%. Wilscot is up 1.8% and John Deere added 5%.
The stock is down 7.5% in the past month. Analysts polled by FactSet are looking for Cat's revenue and earnings to grow 7% and 4% year over year, respectively, in 2019. That's a deceleration from 20% sales growth and 63% earnings growth in 2018.
While Yakavonis is looking largely for positive construction and equipment data out of several companies, the 2020 outlook remains "questionable."