US stocks drop after weak results from AT&T; sour outlook from chipmakers

U.S. stocks dropped on Wednesday as weak results from AT&T and sour outlook from chipmakers ahead of key earnings added to growing worries about corporate profit growth and overshadowed optimism from Boeing's raised forecast.

A slew of results this week is expected to throw the spotlight on the risk of a slowdown in China, the world's No. 2 economy, spilling beyond its borders and eating into U.S. corporate profits.

"The biggest theme is the trade front and what's going on with China's slowdown ... because it's such a big demand space for a lot of industrial and tech companies," said Shawn Cruz, manager of the trader strategy at TD Ameritrade in Jersey City, New Jersey.

"Right now with earnings season going on ... there's plenty to focus on that can give you an idea on what China is doing and what impact tariffs are having on a lot of these companies."

Chipmakers, already struggling with oversupply and reliant on China for a significant portion of profit, dropped after Texas Instruments forecast weak current quarter and STMicroelectronics signalled slowing demand in China.

Texas Instruments dropped 4.9 per cent, helping pull the Philadelphia SE Semiconductor index down 3.63 per cent. Advanced Micro Devices, which reports results after the bell, fell 6.1 per cent and Intel, reporting on Thursday, dropped 2.3 per cent.

The beaten-down S&P technology sector retreated 1.86 per cent. Microsoft, which reports after the bell, fell 2.2 per cent.

AT&T tumbled 6.6 per cent after U.S. wireless carrier's quarterly profit rose less than expected, held back by its declining satellite TV business.

That weighed on shares of other media companies, with the communications services sector sliding 2.32 per cent, the most among the 11 major S&P sectors.

Boeing, the single largest U.S. exporter to China, rose 1.1 per cent after the planemaker raised its full-year expectations. That helped keep the Dow Jones Industrial Average opened higher before the mood soured.

At 11:20 a.m. EDT the Dow was down 251.89 points, or 1.00 per cent, at 24,939.54, the S&P 500 was down 32.76 points, or 1.20 per cent, at 2,707.93 and the Nasdaq Composite was down 119.68 points, or 1.61 per cent, at 7,317.86.

Only the defensive utilities, real estate and consumer staples posted gains among the 11 major indexes.

While earnings from S&P 500 companies are expected to have increased by about 22 per cent in the third quarter, 2018 is seen as a peak for the profit cycle, according to Refinitiv data.

United Parcel Service dropped 3.5 per cent after the company said changing U.S. trade policies weighed on international results.

Ford, due to report after the closing bell, fell 3.1 per cent.

Declining issues outnumbered advancers for a 1.73-to-1 ratio on the NYSE and a 2.36-to-1 ratio on the Nasdaq.

The S&P index recorded four new 52-week highs and 31 new lows, while the Nasdaq recorded 11 new highs and 204 new lows.