Wall Street opened sharply lower on Tuesday as disappointing earnings from industrial bellwethers Caterpillar and 3M piled on to concerns over Saudi Arabia’s diplomatic isolation, Italy’s finances and trade war fears.
The Dow Jones Industrial Average fell 278.95 points, or 1.10 per cent, at the open to 25,038.46.
The S&P 500 opened lower by 34.85 points, or 1.26 per cent, at 2,721.03. The Nasdaq Composite dropped 140.08 points, or 1.88 per cent, to 7,328.55 at the opening bell.
Canada’s main stock index opened lower on Tuesday, taking a cue from global markets and a fall in energy stocks following a $2 drop in Brent crude price.
The Toronto Stock Exchange’s S&P/TSX composite index was down 192.14 points, or 1.25 per cent, at 15,220.56
Marijuana producers led a 7.4-per-cent drop in health care stocks. Aurora Cannabis Inc. fell 12.4 per cent, while Canopy Growth Corp. and Aphria Inc. were down 7.6 per cent and 9.8 per cent, respectively.
In New York, shares of Caterpillar sank 7.2 per cent in early trading after the heavy-duty equipment maker just scraped past quarterly profit estimates as tariffs drove up material costs and the company opted not to raise 2018 earnings forecast.
3M Company fell 6.1 per cent after its third-quarter sales missed estimates and the company cut its full-year profit forecast due to currency headwinds.
The disappointing forecasts from the two Dow Jones Industrial Average components added to concerns over the impact of rising borrowing costs and wages as well as tariffs on corporate profits.
“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 per cent in the third quarter, slower than the previous two quarters and is expected to slow further in the fourth quarter, according to Refinitiv data.
A slowdown in China, dispute over Italy’s spending plans and the stalemate over Brexit as well as the pressure on Saudi Arabia over the facts about the killing of a journalist sapped risk appetite across the globe.
“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.”
The heavyweight technology stocks that helped keep the Nasdaq afloat on Monday also buckled, with chipmakers leading the losses.
Intel, Micron and AMD fell between 1.9 per cent and 4.3 per cent. Analysts suggest a cyclical correction might be at play as the Philadelphia semiconductor index has pulled back more than the broader market this month.
Even the high-flying FAANG group of stocks were not insulated from the broad-based declines. Facebook, Apple , Amazon, Netflix and Google-parent Alphabet fell between 1.5 percent and 2.8 percent.
Amazon, Alphabet, Microsoft and Intel are expected to report results later this week.
All the earnings report on the day were not disheartening.
World shares slid towards their lowest level in a year on Tuesday, as negative drivers from fatigued earnings and Saudi Arabia’s diplomatic isolation to a brewing spat over Italy’s finances piled on the pressure.
The pan-European STOXX 600 was near a two-year low with almost half of its stocks now in bear-market territory -- down 20 percent from their peak.
Germany’s DAX dropped to late 2016 lows, MSCI’s world share index was just two points of a one-year low.
“This is quite an important period now because we have tried to rally a few times and haven’t really managed it,” said Natwest Markets’ head of global strategy James McCormick.
There has been a spike in U.S. bond yields similar to earlier in the year, “but the macro picture for equities is more challenging now,” he added, pointing to fading synchronization in global growth as well a stronger dollar.
That strength kept the euro pinned near a two-month low at at $1.146 before a European Commission meeting that could see Brussels take the unprecedented step of demanding changes to Italy’s recently laid out budget plans.
Italian bond traders were biding their time amid reports of some conciliatory moves from Rome’s coalition but the spat has also bred doubts about the European Central Bank plans to possibly raise its interest rates next year.
Questions about the future of Britain’s prime minister, mired in a stalemate over Brexit, relented just a enough to help sterling claw higher but the mood remained distinctly ’risk off’ regardless.
That helped strengthen the safe-haven Japanese yen and Swiss franc while higher-yielding currencies like the Australian and New Zealand dollars fell.
“The prospect of a normalisation of (ECB) monetary policy was the main reason why the euro was able to appreciate over the past year. However, there is a rising risk that this support is now going to crumble,” Commerzbank analyst Thu Lan Nguyen said.
Markets were also digesting Turkish President Tayyip Erdogan’s comments on the killing of Saudi Arabian journalist Jamal Khashoggi at a Saudi consulate in Istanbul this month.
“Intelligence and security institutions have evidence showing the murder was planned.... Pinning such a case on some security and intelligence members will not satisfy us or the international community,” Erdogan told Turkey’s parliament, though he did not reveal a smoking gun in the form of recordings that some reports had hinted at.
Saudi Arabia, a top crude oil exporter, faces international pressure to provide all the facts about an incident that has raised a global storm and added the threat of sanctions against the kingdom to a list of market concerns.
U.S. President Donald Trump said on Monday he was not satisfied with what he had heard from Saudi Arabia about the killing, but expressed reluctance to punish the kingdom economically.
Investors worry that may lead to Saudi retaliation through crude oil, although a Saudi pledge to play a “responsible role” and keep markets supplied held down crude prices on Tuesday.
Asia’s overnight tumble gave back some of the ground the region had clawed back over the last two sessions.
MSCI’s broadest index of Asian shares dropped 2 per cent to a 1 1/2-year low, with declines in many of the region’s heavyweight bourses even more pronounced.
South Korea’s Kospi and Hong Kong’s Hang Seng both fell 3 per cent and Japan’s Nikkei lost 2.7 per cent.
“We’ve got a few negative factors when market sentiment was already fragile,” said Hiroyuki Ueno, senior strategist at Sumitomo Mitsui Trust Asset Management. “And earnings from some Japanese companies were weaker than expected, with some starting to blame trade wars.”
The yen gained 0.4 per cent amid the risk-off mood to 112.42 to the dollar.
The yuan was little changed but stood near Monday’s 21-month low of 6.9445 per dollar in the onshore trade on expectations China will pursue looser monetary policy to cope with pressure from U.S. President Donald Trump on tariffs.
Oil prices fell more than 2 percent on Tuesday after Saudi Arabia said it could supply more crude quickly if needed, reassuring investors ahead of U.S. sanctions on Iran’s crude exports that start next month.
Benchmark Brent crude oil dropped $2.03 a barrel to a low of $77.80, down 2.5 per cent at a one-month low and beneath its 50-day moving average for the first time in two months.
U.S. light crude lost $1.77 a barrel to a low of $67.59 before recovering to $67.86, down $1.50.
“Saudi Arabia’s energy minister has dealt a fresh heap of bearish fodder onto the energy complex,” said PVM Oil analyst Stephen Brennock.
U.S. sanctions on Iranian oil begin on Nov. 4 and Washington has said it wants to stop all of Tehran’s fuel exports, but other oil producers are pumping more to fill any supply gaps.
Saudi Energy Minister Khalid al-Falih told a conference in Riyadh on Tuesday the oil market was in a “good place” and he hoped oil producers would sign a deal in December to extend cooperation to monitor and stabilize the market.
Reuters