Saudi Arabia, Italy Drag Down U.S. Stocks

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Police cars and tape block off a crime scene where a gunman was shot and killed at Cinergy Odessa movie theater, Midland, Texas, August 31, 2019.
Police cars and tape block off a crime scene where a gunman was shot and killed at Cinergy Odessa movie theater, Midland, Texas, August 31, 2019. Credit: AFP

Wall Street sank more than 2 percent on Tuesday as disappointing forecasts from industrial bellwethers Caterpillar and 3M piled on to concerns over Saudi Arabia's diplomatic isolation, Italy's finances and trade-war fears.

All the three major Wall Street indexes were trading below their 200-day moving averages, a key technical indicator of long-term momentum and all 11 major S&P sectors were in the red, continuing what has been a punishing month for U.S. stocks.

Caterpillar tumbled 8.3 percent after the heavy-duty equipment maker maintained its 2018 earnings forecast, while 3M Co slid 6.4 percent after the company cut its full-year profit forecast due to currency headwinds.

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The forecasts from the two Dow Industrials triggered alarm bell over the impact of rising borrowing costs, wages and tariffs on corporate profits. Industrial stocks slid 1.90 percent.

Technology stocks also buckled and slid 2.14 percent, in tandem with global peers, over concerns of slowing growth in China and a tepid forecast from Apple supplier AMS AG's.

"This is more about global GDP because 3M is cutting its FY forecast so that is a worry for U.S. investors worried about slowing growth: "Is the world slowing down and will our companies feel the pain?", said Kim Forrest, senior portfolio manager at Fort Pitt Capital Group in Pittsburgh.

Profits of S&P 500 companies are expected to have jumped nearly 22 percent in the third quarter, slower than the previous two quarters, according to Refinitiv data.

Growth is expected to slow further in the fourth quarter, as the effects of U.S tax cuts fade and the impact of tariffs and rising costs rise.

Amazon, Alphabet, Microsoft and Intel, all due to report this week, were down between 1.7 percent and 2.6 percent. Apple fell 1.6 percent.

A slew of geopolitical concerns have converged to send investors scrambling out of stocks.

"There are a number of underlying risk factors in the markets right now, be it U.S. interest rates, Brexit, Italian debt, trade wars or emerging markets," Craig Erlam, senior market analyst at online forex broker Oanda, said in a note.

"These are all destabilizing factors and sentiment may finally be caving under the weight of it all."

At 9:53 a.m. EDT the Dow Jones Industrial Average was down 338.11 points, or 1.34 percent, at 24,979.30, the S&P 500 was down 40.62 points, or 1.47 percent, at 2,715.26 and the Nasdaq Composite was down 132.07 points, or 1.77 percent, at 7,336.56.

All 11 major S&P sectors were in the red, with the smallest losses posted by the defensive utilities, real estate and consumer staples indexes.

Energy stocks fell 2.59 percent, the most among the S&P sectors, as oil prices fell after Saudi Arabia said it could supply more crude quickly if needed.

Chipmakers, which rely heavily on China for a significant portion of their revenue, leading the losses among tech stocks. All members of the Philadelphia semiconductor index were in the red, led by Nvidia's 4.4 percent slide.

However, all earnings report on the day were not disheartening.

McDonald's rose 4.7 percent after it beat estimates for quarterly same-store sales as strong demand in international markets.

Verizon gained 2.8 percent after beating estimates for profit and net new phone subscribers.

Declining issues outnumbered advancers for a 5.97-to-1 ratio on the NYSE and a 4.44-to-1 ratio on the Nasdaq.