Stock indexes sank Monday after twin announcements highlighted how much China’s slowing economic growth is hurting profits for U.S. companies.
Caterpillar, a bellwether for industrial companies, reported fourth-quarter earnings that fell well short of analysts’ expectations and said that it expects construction-equipment sales growth in China to be flat in 2019 following years of significant growth. Chipmaker Nvidia, meanwhile, cited slowing demand in China as one of the reasons for slashing its forecast for fourth-quarter revenue.
Wall Street had already been fixated on the effects of China’s slowdown, particularly with trade tension high between Washington and Beijing, and the announcements sent the technology and industrial sectors to sharp losses. They helped drag the S&P 500 down 20 points, or 0.8 percent, to 2,643.
The Dow Jones industrial average fell 208, or 0.8 percent, to 24,528, the Nasdaq composite lost 79, or 1.1 percent, to 7,085, and the Russell 2000 index of small-cap stocks dropped 9, or 0.6 percent, to 1,473.
China, the world’s second-largest economy, generated its slowest economic growth last year since 1990, and the impact is being felt widely among the many U.S. companies that rely on China for sales, especially industrial and technology companies. China accounts for 5.5 percent of all revenue for S&P 500 companies, second-most in the world after the United States, according to FactSet.
Nvidia and Caterpillar fell to the sharpest losses in the S&P 500, with drops of 13.8 percent and 9.1 percent, respectively.
Tech giants Microsoft and Apple were also weighed down by China concerns. Microsoft fell 2 percent, and Apple shed 0.9 percent. Apple shook markets this month when it warned of lagging sales in China.
Kristina Hooper, chief global market strategist at Invesco, expects a “widespread” impact from the global slowdown and said Apple was “the canary in the coal mine.”
“This, if nothing else, is putting more emphasis and focus on U.S.-China trade talks this week,” she said.
Talks aimed at resolving the impasse over Chinese technology policy and other issues are due to resume in Washington this week. Analysts say there might be moves to trim China’s massive trade surplus with the U.S. that could stave off further hikes in punitive tariffs imposed by both sides. However, they expect gaps to remain on key problems such as China’s blueprint for state-led development of leading technologies
The trade meeting is just one of several big events that could swing markets in a busy week. Also upcoming are a meeting by the Federal Reserve on interest rates, the U.S. jobs report and earnings reports from about a quarter of all the companies in the S&P 500 index.
Investors are hoping for encouraging clues that interest rates will remain low enough and job growth strong enough so as to avoid a recession. Fear of a potential recession took its toll on the stock market at the end of 2018, and the S&P 500 fell nearly 20 percent between setting its record on Sept. 20 and Christmas Eve.
In Europe, the threat of a continued economic slowdown has been hanging over what is an already contentious situation with Britain’s expected departure from the European Union in March. Economic growth in Europe slowed in the last half of 2018 and indicators at the start of this year have been weak.
The British FTSE 100 lost 0.9 percent, while the French CAC 40 fell 0.8 percent and the German Dax lost 0.6 percent. In Asia, Japan’s Nikkei 225 index fell 0.6 percent. The Hang Seng in Hong Kong and South Korea’s Kospi were both virtually flat.
In the commodities market, U.S. crude oil fell 3.2 percent to settle at $51.99 per barrel in New York. Brent crude, used to price international oils, fell 2.8 percent to $59.93 per barrel.
The price of oil did not have a big reaction to the Trump administration imposing sanctions Monday on the state-owned oil company of Venezuela.
Wholesale gasoline fell 4.1 percent to $1.33 a gallon. Heating oil lost 2.9 percent to $1.84 a gallon and natural gas dropped 8.4 percent to $2.91 per 1,000 cubic feet.
The price of gold rose 0.4 percent to $1,303.10 an ounce, silver also rose 0.4 percent to $15.77 an ounce and copper fell 1.8 percent to $2.68 a pound.
Bond prices rose. The yield on the 10-year Treasury note dipped to 2.74 percent from 2.75 percent late Friday.
The dollar slipped to 109.36 Japanese yen from 109.64 yen late Friday. The euro rose to $1.1427 from $1.1414, and the British pound dipped to$1.3158 from $1.3198.