The biggest week of earnings season started off miserably
The Dow (INDU) dropped 209 points, or 0.8%, Monday following downbeat results from major companies that reinforced Wall Street’s slowdown fears. The S&P 500 (INX) also declined 0.8%, while the Nasdaq (COMP) dropped 1.1%.
Investors were already nervous about global growth after China reported overnight that industrial profits declined in December.
Then Caterpillar (CAT), a Dow component and reliable gauge of the world economy, shocked Wall Street by posting its biggest earnings miss in a decade. The maker of earth-moving equipment blamed its poor results on “lower demand” in China, one of its major markets. The news dragged down industrial stocks including Boeing (BA), General Electric (GE) and 3M (MMM).
Nvidia (NVDA) added to the doom-and-gloom by slashing its fourth-quarter sales guidance. The chip maker cited “deteriorating” economic conditions, “particularly in China.” Nvidia (NVDA) shares plunged 14%. And the dreary news weighed on rivals Intel (INTC), Applied Materials (AMAT) and Texas Instruments (TXN), all of which fell by more than 1% apiece.
Economic worries seeped into the commodity markets, where US oil prices plummeted 3.2% to $51.95 a barrel. Brent crude, the global benchmark, fell 3.2% to $51.99 a barrel. Oil stocks such as Anadarko Petroleum (APC) and Baker Hughes (BHGE) fell sharply. Economic concerns are overshadowing the deepening crisis in Venezuela that threatens to wipe out further production from the OPEC member.
The selloff comes after US markets have recovered about half of their losses from the dramatic downturn that began late last year. The Dow narrowly eked out a fifth straight week of gains last week, its longest weekly win streak since July.
Still, Morgan Stanley is advising clients to “dismount” from the bull market because of slower economic and earnings growth ahead.
“We’ve gotten close enough on a bull that is becoming increasingly dangerous and we struggle to see the upside in hanging on just to see how long we can,” Michael Wilson, chief US equity strategist at Morgan Stanley, wrote to clients on Monday. “We think it is better to hop off now and rest up for the next rodeo.”