U.S. Stocks Fall on Earnings Outlooks, Worries About Global Growth
October 23 2018 - 12:45PM
Dow Jones News
By David Hodari and Akane Otani
Stocks slumped Tuesday as worries about global economic growth
and downbeat earnings outlooks from bellwether U.S. firms rippled
across markets from New York to China.
The Dow Jones Industrial Average slid 304 points, or 1.2%, to
25013, deepening declines that have put it on track for its worst
month since August 2015. The S&P 500 fell 1.3%, while the
Nasdaq Composite shed 1.2% and teetered on the brink of correction
territory -- a drop of at least 10% off its August record.
Investors began the day grappling with a fresh set of worries
about the global economy. Major indexes in Shanghai, Japan and Hong
Kong tumbled after Chinese officials moved to ramp up financing for
private firms, the latest step they have taken to try to stabilize
the country's financial markets and reverse a slowdown of
growth.
Tepid outlooks from industrial giants 3M and Caterpillar added
to the dark mood Tuesday. 3M lowered its earnings forecast for the
year, while Caterpillar said it would have to raise prices for most
of its machines and engines next year to offset rising materials
costs, as well as tariffs.
Altogether, investors were left with an increasingly muted
outlook for the global economy, which has shown signs of sputtering
this year after a synchronized expansion last year drove stocks
around the world higher. The International Monetary Fund, citing
headwinds from protectionist trade policies and instability in
emerging markets, earlier in October cut its forecasts for global
economic growth for 2018 and 2019.
Even the U.S., which many investors have regarded with more
optimism, has shown signs of faltering. Data have shown some
weakness in the housing and auto markets, and a report Friday is
expected to show economic growth moderating in the third
quarter.
Investors have a "glass half-empty" approach to the current
earnings seasons, according to Ronan Carr, equities strategist at
Bank of America Merrill Lynch. "Globally, results haven't been bad,
but the companies that miss are getting hammered and even the ones
that beat expectations have been underperforming in the 24 hours
after publishing."
As stocks around the world reared back, investors poured money
into government bonds and other assets that tend to perform well
during volatile stretches.
The yield on the benchmark 10-year U.S. Treasury note was at
3.135%, down from 3.196% Monday. Yields fall as bond prices rise.
Gold jumped 0.8% to $1,234.60 a troy ounce, while the yen rose 0.5%
against the U.S. dollar.
Technology shares resumed a recent slide. Shares of fast-growing
companies disrupting industries ranging from communications to
entertainment had powered much of the stock market's gains in the
first half of the year. Yet in recent months, investors have
increasingly questioned whether the rally had left shares
overextended.
That has sent shares of a range of technology-driven firms
tumbling, with Apple down 0.9%, Alphabet off 1% and Amazon.com
losing 2.5% on Tuesday.
The tech rout also hit Europe, where Austrian semiconductor
manufacturer AMS's earnings disappointed investors. The Stoxx
Europe 600 fell 1.6% and notched its fifth consecutive daily
decline.
Global markets were also pressured by sliding oil prices, which
headed for their steepest one-day drop since July.
U.S. crude oil slumped 4.8% to $66.01 a barrel, with some
analysts attributing the declines to fears about rising supply and
others saying the selloff was part of a broader retreat from risky
assets that had performed well earlier in the year.
"It's hard to really get out there and find a bullish situation
here," said Bob Yawger, director of the futures division at Mizuho
Securities U.S.A.
Downbeat U.S. and European trading followed heavy selling in
Asia-Pacific, where investors reversed the broader market rally
that came on Friday and Monday amid anxieties about Chinese
economic growth.
Indexes across the region suffered heavy losses, with the main
benchmarks in Shanghai, Japan, South Korea and Taiwan slumping 2%
or more.
The steep fall in Chinese stocks marked a U-turn from the
Shanghai index's sharpest two-day rise since 2015, which came as
investors parsed reassuring comments by key government and central
bank officials about the health of Chinese economic growth.
Coming after government proposals to cut income tax, analysts
are uncertain whether such moves will prevent Chinese growth from
decelerating further.
"We're asking whether China is doing stimulus by a thousand
cuts, but I'm still very skeptical," said Ian Samson, markets
research analyst at Fidelity International. "The ongoing slowdown
is quite natural, but it will continue to weigh on global
growth."
Write to David Hodari at David.Hodari@dowjones.com and Akane
Otani at akane.otani@wsj.com
(END) Dow Jones Newswires
October 23, 2018 13:30 ET (17:30 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.