The U.S.-China Trade War is Throttling Deere

Deere (NYSE:DE) is the world’s largest manufacturer of agricultural equipment. Shares had dropped 19.9% month-over-month as of mid-afternoon trading on May 21. The post-earnings drop in May has put the stock in negative territory for 2019.

Shares plunged after Deere cut its 2019 guidance on May 17. Several factors led to the downward adjustment. Tariffs are not expected to hurt raw-material costs, Deere is more concerned about the impact uncertainty will have on demand. Inventories have built up at Deere, which suggests that certain sectors of the industrial economy may be feeling the pinch of tariffs.

A delayed planting season in the United States exacerbated by bad weather has hurt Deere. The outbreak of swine flu in China and lower demand for soybeans has also been detrimental.

Deere projects that forestry sales will be flat for the year, when it had previously projected 5% to 10% growth in this business. Total construction investment is forecast to be flat for the year.

This is a troubling development considering the strong economic conditions that abound in the U.S. right now. The International Monetary Fund and U.S. Federal Reserve expects a slowdown as we move into the next decade, which should concern investors.

Deere is currently trading at the low end of its 52-week range. The stock had an RSI of 29 as of this writing, which puts Deere in technically oversold territory. Relations between the U.S. and China do not appear to be improving, which means investors should brace themselves for a prolonged trade war. Deere is technically oversold but still a risky pickup today.