Weak forecasts take toll on US talks amid worries of slowdown

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 per cent 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 per cent. Nvidia slid 16 per cent 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 per cent, while the S&P technology index dropped 2.1 per cent. "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 per cent as oil prices fell more than 2 per cent 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 per cent, at 24,365.25, the S&P 500 was down 34.96 points, or 1.31 per cent, at 2,629.80 and the Nasdaq Composite was down 123.76 points, or 1.73 per cent, 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 scepticism 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 per cent 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 per cent have beaten profit estimates, according to IBES data from Refinitiv. However, earnings growth estimate for the fourth quarter has dropped to 14.2 per cent from 20.1 per cent at the start of October, while 2019 profit growth estimates have come down to 5.6 per cent from 10.2 per cent 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.