U.S. Stocks Drop on Earnings Outlooks, Political Tensions
October 23 2018 - 10:30AM
Dow Jones News
By David Hodari and Akane Otani
Global stocks slumped Tuesday as worries about 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 344 points, or 1.4%, to
25964 shortly after the opening bell, moving closer to erasing all
of its gains for the year. The S&P 500 fell 1.4%, while the
Nasdaq Composite shed 1.7%.
Tuesday's slide came as investors grappled with the latest slew
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.
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
3.128%, down from 3.196% Monday. Yields fall as bond prices rise.
Gold jumped 1% to $1,234.08 a troy ounce, while the Japanese yen
rose 0.6% against the U.S. dollar.
Technology shares, which had powered U.S. stocks higher in the
first half of the year, resumed a recent slide. Apple fell 1.3%,
while Facebook lost 1.7% and Netflix slumped 2.2%.
The tech rout also hit Europe, dragging the Stoxx Europe 600
down 1.3%.
Downbeat 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.
The Shanghai Composite Index and the Shenzhen A Share closed
down 2.3% and 1.9% respectively. Sinking financial stocks dragged
Hong Kong's Hang Seng down 3.1%. Indexes across the rest of the
region suffered heavy losses, with the main benchmarks in 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 10:15 ET (14:15 GMT)
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