NVDA NVIDIA Corporation

By David Hodari and Akane Otani 

Stocks sold off sharply 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 497 points, or 2%, to 25820, moving closer to erasing all of its gains for the year. The S&P 500 fell 2.2%, while the Nasdaq Composite shed 2.6% and was on track to close in correction territory--or more than 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 3.120%, down from 3.196% Monday. Yields fall as bond prices rise. Gold jumped 0.9% to $1,235.60 a troy ounce, while the Japanese yen rose 0.6% 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 2.2%, Netflix down 3.3%, Alphabet off 2.5% and Amazon.com losing 3.5% on Tuesday.

The tech rout also hit Europe, where Austrian semiconductor manufacturer AMS's earnings disappointed investors. The Stoxx Europe 600 fell 1.7%, with its tech sector off 3.9%.

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 11:04 ET (15:04 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.