Wall Street rattled by Caterpillar, Nvidia warnings

U.S. stocks slumped on Monday, as warnings from Caterpillar Inc and Nvidia Corp added to concerns about a slowing Chinese economy and tariffs taking a toll on corporate profits.

Shares of Caterpillar, the world’s largest heavy equipment maker, fell 9.3 percent after its quarterly profit widely missed Wall Street estimates, hit by softening demand in China and higher manufacturing and freight costs.

The company’s shares were on track for their worst day since August 2011, accounting for nearly a quarter of the Dow’s fall. The S&P industrial index dropped 1.4 percent.

Nvidia tumbled 13.8 percent after the chipmaker cut its fourth-quarter revenue estimate by half a billion dollars on weak demand for its gaming chips in China and lower-than-expected data center sales.

The Philadelphia semiconductor index fell 2.1 percent, while the S&P technology index dropped 1.8 percent.

“Every time we get earnings stating China as a problem, investors start to realize that issues with China are going to spread and without China growing at a good clip it will be hard for the global economy and the U.S. to continue an expansion,” said Ryan Nauman, market strategist at Informa Financial Intelligence in Zephyr Cove, Nevada.

Global stocks started on the back foot after China data showed earnings at industrial firms shrank for a second straight month in December, hit by slowing prices and weak factory activity amid a protracted trade war with the United States.

As signs of a slowdown in the world’s second-largest economy become stark, investors are pinning their hopes for a compromise between Washington and Beijing on trade when officials meet later this week.

“With the Chinese economy struggling the way it is and with companies feeling the impact, the U.S. is also starting to realize that there is enough motivation to get a deal done. It’s just a question of when,” said Nauman.

Although earnings have largely surpassed Wall Street’s expectations, helping the S&P 500 climb about 12 percent from its December lows, worries about slowing global growth have tempered expectations and put a lid on stocks.

Of the 113 S&P 500 components that have reported so far, 72.6 percent have beaten profit estimates, according to IBES data from Refinitiv.

Since the reporting season kicked off two weeks ago, analysts’ estimates for fourth-quarter profit growth have stayed steady at about 14 percent, but expectations for 2019 earnings growth has dropped to 5.6 percent from 6.3 percent.

At 12:44 p.m. ET the Dow Jones Industrial Average was down 338.08 points, or 1.37 percent, at 24,399.12, the S&P 500 was down 31.94 points, or 1.20 percent, at 2,632.82 and the Nasdaq Composite was down 103.65 points, or 1.45 percent, at 7,061.21.

Ten of the 11 major S&P sectors were lower. Amazon.com Inc, Apple Inc and Microsoft Corp — all set to report later this week — were down more than 2 percent, dragging down the S&P 500 and the Nasdaq.

The S&P energy index dropped 1.7 percent as oil prices fell after U.S. companies added rigs for the first time this year, a signal that crude output may rise further.

Amgen Inc fell 4 percent, weighing the most on the Nasdaq Biotech index, after Evercore ISI downgraded its stock, citing heightened competition for its arthritis drug.

Declining issues outnumbered advancers for a 2.09-to-1 ratio on the NYSE and a 2.05-to-1 ratio on the Nasdaq.

The S&P index recorded seven new 52-week highs and one new low, while the Nasdaq recorded 26 new highs and 26 new lows.