Narrow Leadership of Deere and Caterpillar Raises Red Flags

Deere and Caterpillar have led the industrial sector this year, but their stock prices have not been matched by the broader group.

The Industrial Select Sector SPDR ETF (XLI) is up just 12% year to date, while Deere (DE) has risen 47% and Caterpillar (CAT) has gained 44%. The gap between these two names and their sector fund is roughly four times the move of the entire group.

The narrow leadership of Deere and Caterpillar raises questions about whether this is a warning sign or a competitive edge. If the story behind their gains cools, they may fall alone without a broader bid to catch them up.

However, neither stock has started giving back its gains, and momentum that keeps grinding higher while the sector lags is unusual and typically reflects idiosyncratic strength that the broader group hasn't fully priced. Holders of Deere or Caterpillar shares may want to consider preserving their original thesis without letting a single-name gain balloon into a single-name risk.