Wall Street drops more than 1 percent on Caterpillar, Nvidia warnings

(Reuters) – U.S. stocks dived on Monday, as weak forecasts from Caterpillar Inc and Nvidia Corp fueled worries about a slowdown in China taking a bigger bite off corporate profits.

Shares of Caterpillar, the world’s largest heavy equipment maker, fell 8.1 percent as its quarterly profit widely missed Wall Street estimates, hit by softening demand in China, a strong dollar, and higher manufacturing and freight costs. The company’s full-year earnings outlook also fell short of estimates.

Caterpillar was the biggest drag on the Dow and the S&P industrials index, which dropped 1.6 percent.

Nvidia slid 16 percent after the chipmaker cut its fourth-quarter revenue estimate by half a billion dollars, hit by weak demand for its gaming chips in China and lower-than-expected datacenter sales.

Nvidia pulled down the Philadelphia semiconductor index by 2.9 percent, while the S&P technology index dropped 2.1 percent.

“With Caterpillar blaming China, investors are expecting to see more companies do the same in through the week,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

“The quality of earnings so far isn’t all that negative, but investors are clearly focusing more on what a company like Caterpillar would say.”

Earlier, China data showed earnings at industrial firms shrank for a second month in December, hit by slowing prices and weak factory activity amid a protracted U.S.-China trade war.

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.

The downbeat mood kept the 11 major S&P sectors and all the 30 Dow components in the red.

The S&P energy index dropped 1.6 percent as oil prices fell more than 2 percent after U.S. companies added rigs for the first time this year, a signal that crude output may rise further.

At 9:56 a.m. ET the Dow Jones Industrial Average was down 371.95 points, or 1.50 percent, at 24,365.25, the S&P 500 was down 34.96 points, or 1.31 percent, at 2,629.80 and the Nasdaq Composite was down 123.76 points, or 1.73 percent, at 7,041.11.

Washington’s move to end the 35-day long government shutdown boosted Wall Street on Friday. However, anxiety over another closure surfaced as President Donald Trump over the weekend expressed skepticism about lawmakers reaching a deal on border security that was acceptable to him.

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.

However, earnings growth estimate for the fourth quarter have dropped to 14.2 percent from 20.1 percent at the start of October, while 2019 profit growth estimates have come down to 5.6 percent from 10.2 percent in the same period.

Declining issues outnumbered advancers for a 4.02-to-1 ratio on the NYSE and a 3.13-to-1 ratio on the Nasdaq.

The S&P index recorded five new 52-week highs and no new lows, while the Nasdaq recorded 12 new highs and 16 new lows.