Key Points
Caterpillar fell 5.8% to $813.83 Wednesday, leading the Dow lower, as long-term Treasury yields climbed to their highest level since 2002.
The 30-year Treasury yield touched about 5.72%, and the 10-year hit 5.35% before a strong $39 billion auction pulled it back.
Fed minutes showed most officials expect another rate hike by year-end, though they gave no hint on timing.
The Dow fell 341 points, and the S&P 500 and Nasdaq slipped from Tuesday's record closes.**
A day after Wall Street piled into the companies that power artificial intelligence, it ran from the one that builds the machines.
On Tuesday, Google's mega-deal with Constellation Energy sent power stocks soaring. On Wednesday, Caterpillar, which sells the generators that keep data centers running, had one of its worst days of the year.
The reason wasn't anything Caterpillar said. It was the bond market.
The Machine Maker That Became an AI Stock
For most of its history, Caterpillar was a bet on bulldozers, mining trucks and the construction cycle. Then data centers started buying its equipment.
In the second quarter, Caterpillar's revenue rose 24% to $20.5 billion, and adjusted earnings of $8.17 a share crushed the $6.20 estimate. Dealer-reported sales of power generation equipment jumped 72% from a year earlier, as data center operators lined up for large generators and turbines. Its order backlog nearly doubled to a record $72 billion.
Wall Street rewarded it. The stock closed 2025 at $572.87 and closed at a record of about $1,065 on June 30, a gain of roughly 86% in six months.
That's what made Wednesday sting. Caterpillar dropped $49.61 a share to $813.83, wiping out roughly $22 billion in market value. The stock is still up about 42% this year, but it now sits roughly 24% below its June record.
Why the Bond Market Hit Caterpillar
Heavy equipment is usually bought on credit or carried on rental fleets. When long-term borrowing costs jump, contractors, miners and trucking companies think twice before signing for a $1 million machine.
And borrowing costs jumped. The 10-year Treasury yield hit 5.35% Wednesday morning, its highest level since 2002, while the 30-year bond touched about 5.72%. This is the same bond market that just had its worst quarter since 1994. The average 30-year mortgage rate rose to 7.49%, according to Forbes.
The selling spread across the machinery group. Deere fell 3.8% to $656.87 on rates and a new USDA and Federal Trade Commission inquiry into competition in farm equipment. PACCAR slid 2.3% to $106.86.
There's also a second worry. Earlier this week, Truist trimmed its outlook on Caterpillar while keeping a Buy rating. It flagged investor doubts about how long power, data center and AI spending will last, along with higher interest rates and diesel costs. When a stock has run this far on one theme, any crack in that theme gets punished.
That's the irony. Just yesterday, Google signed a 3,590-megawatt power deal with Constellation Energy, proof that AI's thirst for electricity is still growing. Constellation edged down just 0.3% to $299.59, holding nearly all of Tuesday's 12% jump, Wednesday.
The Fed Said "Another Hike"
At 2 p.m., the Fed released minutes from its September meeting, when it raised rates by a quarter point to a range of 3.75% to 4%. Most officials said another increase would "likely be appropriate by year end." They gave no sign whether that means October or December.
Stocks were already lower when the minutes came out, and they finished the day with modest losses. Losses were trimmed late as oil prices turned lower.
The bond market did get one piece of good news. The Treasury sold $39 billion of 10-year notes at 5.300%, below the 5.317% expected when bidding closed, a sign of strong demand. Foreign and other indirect buyers took 80.3%, well above the 74.1% average. By the close, the 10-year yield had settled back to about 5.29%, barely above Tuesday's 5.28%. The 30-year ended near 5.67%, and the two-year yield dipped to 4.77%.
Winners and Losers
The broader market backed off its records. The Dow fell 341 points, or 0.7%, to 51,179.87, snapping a four-day winning streak. The S&P 500 slipped 0.2% to 7,801.77, also ending a four-day run, and the Nasdaq lost 0.2% to 27,538.69, its first down day in six sessions. The VIX, Wall Street's fear gauge, was little changed at 15.08.
Webull plunged 19.1% to $5.89 after a bipartisan House committee found the trading app's ties to the Chinese government create a national security risk. Worthington Steel fell 6.9% to $35.56 after its earnings fell from a year ago.
On the upside, Penguin Solutions jumped 13.1% to $72.61 after its results beat estimates and it raised its 2027 outlook on AI data center demand. Micron rose 4.1% to $1,088.00 after D.A. Davidson argued AI memory demand will outrun supply through 2028. Constellation Brands gained 2.4% to $118.39 after its earnings beat, and Spotify climbed 5.1% to $512.92 after expanding its audiobook service to more than 180 markets.
Oil gave back an early rally. Brent rose about 0.6% to roughly $101.20 a barrel, while U.S. crude slipped 0.2% to about $89.24, after the International Energy Agency agreed to speed up releases of emergency oil stocks. Prices had jumped in the morning on a storm headed for the Gulf of Mexico and Houthi attacks on Saudi Arabia.
What Lands Next
Thursday: PepsiCo reports before the opening bell, with analysts expecting about $2.30 a share. The Treasury also auctions $22 billion of 30-year bonds, a fresh test after the long bond hit a 24-year high.
Friday: Delta Air Lines kicks off airline earnings, with $100 oil squeezing jet fuel budgets.
Next week: The big banks start reporting Oct. 13, and September CPI lands Oct. 14. Then the Fed meets Oct. 27-28. Caterpillar reports its third quarter in early November.
For most of this year, Caterpillar traded like an AI stock. On Wednesday, it traded like an industrial again. Investors who own it now have to decide which one they're holding, before the bond market decides for them.
This article is for informational and educational purposes only and does not constitute investment advice or a recommendation to buy or sell any security.
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