Deere (NYSE: DE) has outperformed with 18% gains this year, compared to a 2% decline for the broader S&P 500 index. What explains this strong performance? Deere is currently navigating a cyclical downturn, and investors expect a recovery may be just around the corner.
But consider this: How would you feel if Deere stock fell by 30% over the next two months? And what about a drop of 50-70%? This is not fiction—it happened during the 2008/2009 financial crisis and again during the 2020 COVID-19 pandemic and again during the inflation shock of 2022.
There is no denying the rising concerns over macroeconomic uncertainties. The Trump administration’s tariffs will likely result in cheaper goods being removed from the market, leading to higher prices. These factors could potentially thrust the U.S. economy into turbulence or even a recession, as detailed in our macroeconomic analysis. Geopolitical issues add another layer of complexity, with the ongoing Russia-Ukraine conflict and evolving U.S. involvement—including a pending mineral deal and intelligence sharing with Ukraine. []
“What does this have to do with Deere?” you might ask. Here is why it matters:
Indeed, Deere’s business has recently struggled due to declining agricultural income, though it is expected to improve this year with federal aid. However, higher interest rates will make it more costly for farmers to finance equipment purchases. If inflation surges again, will the Federal Reserve be ready to cut rates aggressively? We do not believe so. Even with anticipated growth in farm income, the risks from macroeconomic uncertainty and high interest rates do not bode well for Deere.
Furthermore, although China’s tariffs on agricultural equipment imports might have minimal impact on Deere given its limited exposure to the Chinese market, U.S. tariffs on metal imports will undoubtedly affect production costs. These increased costs could subsequently lower demand from farmers.
Recently, China announced tariffs on various farm products, which would lead to higher costs and contracting markets for American agricultural goods, thereby creating additional economic challenges for farmers. []
Given these challenging circumstances, it seems questionable whether farmers will be willing to invest in new farm equipment in the near term, despite a recent overall decline in input costs.
Certainly, Deere has generated substantial wealth for long-term shareholders. Nonetheless, investors must recognize the company’s vulnerability during economic downturns. The events of 2020 clearly illustrate this risk when Deere’s stock fell by more than 35% within just a few weeks. This historical pattern prompts an important question: could Deere’s current $500 share price potentially fall below $350 if similar market conditions recur? For those seeking growth with reduced single-stock volatility, the High-Quality portfolio offers an alternative, having outperformed the S&P 500 and delivered returns exceeding 91% since its inception.
How Resilient Is DE Stock During a Downturn?
We observe that DE stock has performed worse than the benchmark S&P 500 index during several recent downturns. Concerned about the effects of a market crash on DE stock? Our dashboard How Low Can Stocks Go During A Market Crash illustrates how key stocks performed during and after the last six market crashes.
Inflation Shock (2022)
- DE stock fell 34.1% from a high of $438.45 on 18 April 2022 to $289.14 on 6 July 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
- The stock fully recovered to its pre-Crisis peak by 25 November 2022
- Since then, the stock has increased to a high of $509.27 on 19 February 2025 and currently trades at around $500
COVID-19 Pandemic (2020)
- DE stock declined by 37.4% from a high of $177.43 on 23 February 2020 to $111.15 on 23 March 2020, compared to a peak-to-trough drop of 33.9% for the S&P 500
- The stock fully recovered to its pre-Crisis peak by 29 July 2020
Global Financial Crisis (2008)
- DE stock declined by 73.8% from a high of $94.69 on 14 January 2008 to $24.83 on 2 March 2009, compared to a peak-to-trough drop of 56.8% for the S&P 500
- The stock fully recovered to its pre-Crisis peak by 11 February 2011
Premium Valuation Amid Slowing Growth
It is not that Deere stock is trading at a low valuation due to its recent cyclical downturn. In fact, Deere’s current valuation poses another challenge, as the stock trades at premium multiples of nearly 3.0x last year’s sales and approximately 20x last year’s earnings. These figures exceed the company’s four-year historical averages of 2.3x sales and 16x earnings. Further complicating the investment thesis, Deere faces decelerating growth prospects, with consensus estimates forecasting a revenue decline of 15% and an earnings decline of 25% in 2025.
Given this slowdown in growth and the broader economic uncertainties, ask yourself the question: do you want to hold onto your Deere stock now, or will you panic and sell if it begins to drop to $350, $250, or even lower levels? Holding on to a falling stock is never easy. Trefis collaborates with Empirical Asset Management—a Boston-area wealth manager—whose asset allocation strategies yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Empirical has incorporated the Trefis HQ Portfolio in this asset allocation framework to provide clients with better returns and less risk compared to the benchmark index; less of a roller-coaster ride, as evidenced by HQ Portfolio performance metrics.
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Trump Administration Pauses Intelligence Sharing With Ukraine, Julian E. Barnes, Michael Schwirtz, Eric Schmitt and Adam Entous, March 5, 2025, The New York Times [↩]
American Farmers Brace for Harm From Retaliatory Tariffs, Danielle Kaye, March 4, 2025, The New York Times [↩]