Is Caterpillar Stock Increasing Your Market Risk?
Caterpillar (CAT) owners watched the stock rise 2.3% in the last five sessions while the S&P 500 fell 1.2%. If the rest of your money follows the market, Caterpillar’s moves on ordinary market days matter more than one good week. So is Caterpillar stock increasing your market risk?
Yes, Caterpillar Makes Your Good And Bad Days Bigger
Over the past year of daily closes, Caterpillar moved further than the S&P 500 on both down days and up days. On an average day the index fell, the index lost 0.61% and Caterpillar lost 0.79%. That average down day took about $79 off the value of a $10,000 holding.
The gap between the two was wider on up days. On an average day the index rose, the index gained 0.63%, while Caterpillar gained 1.16%. That added about $116 to the value of the same holding. So over the past year, the stock took a bigger share of the market’s rises than of its falls.
Volatility is a yearly measure of how widely a stock’s daily moves spread. Caterpillar’s volatility over the past year was 39.8%, against 13.0% for the index. On average, Caterpillar also moved about 1.71% for each 1% the index moved. So Caterpillar adds to the market risk you already carry. It does not steady it.
That independent behavior is reflected in their correlation of 0.56 over the past year (where 1.0 represents moving in lockstep), confirming that a meaningful portion of Caterpillar’s swing comes from its own business cycles rather than the index.
Caterpillar Is Expanding For Data Center Power Demand
Caterpillar is expanding to meet data center power demand whose later years are still uncertain. Whether data center power demand maintains this pace over the long term remains an open question, leaving the stock sensitive to any shifts in order cadence. Power & Energy was Caterpillar’s largest business in fiscal 2025. Management said power generation sales to users grew 72% in the second quarter of fiscal 2026, driven by demand from data centers.
Caterpillar’s backlog, the orders it has not yet delivered, reached $72 billion in that quarter, up 92% from a year earlier. Demand from data centers in later years came up as a concern on that quarter’s earnings call. Management answered that no customer is slowing down at the moment.
Has Caterpillar Rewarded Holders For The Extra Risk?
Yes, so far. Over the past five years, Caterpillar holders earned more than enough to make up for the wider swings. The stock returned 36.3% a year including dividends, against 13.9% for the S&P 500. Its yearly volatility over those five years was 31.8%, against 17.0% for the index.
Return divided by volatility is the return earned for each unit of swing. Over the five years, Caterpillar’s ratio came to 1.14, against 0.82 for the index. So over those five years, each unit of Caterpillar’s swing came with more return than the index’s did.
Historically, Caterpillar has tended to magnify the market’s broader up and down days, but with a moderate 0.56 correlation, individual sessions can and do diverge from that average pattern. On the next down day, Caterpillar will likely take away more. You may already own companies that sell into the data center build-out. If so, Caterpillar adds more of that same bet instead of spreading it.
How To Act On CAT?
Before you decide on CAT, consider a better choice. Since its inception, the Trefis High Quality (HQ) Portfolio has beaten the benchmark that combines the three major indices – the S&P 500, S&P Mid-cap, and Russell 2000. And it did so without taking the concentrated risk that comes with retail stock picking.
If you’d rather act on CAT itself: