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Stocks declined in early trading on Wall Street on Tuesday, as the American industrial firms Caterpillar and 3M reported earnings that failed to ease investors’ growing concerns about China’s slowing economy and growing trade tensions.
The Standard & Poor’s 500-stock index was down more than 1.5 percent %late Tuesday morning in New York. Stock markets in China, Japan and Germany — some of the countries most heavily exposed to a slowdown in global trade — all dropped earlier.
3M was down more than 7 percent on Tuesday morning after reporting weaker-than-expected third-quarter sales and profits. Caterpillar’s results beat analysts’ expectations, but the company’s shares nonetheless fell more than 8 percent as it warned of rising costs as a result of the Trump administration’s tariffs on imported steel.
Throughout the year, corporate profits have risen more than 20 percent thanks to the strong economy and cuts to tax rates. But as the end of the year approaches, investors are setting their sights on what the profit picture looks like next year.
“The market is quickly changing its focus toward whether the best news from tax cuts is already reflected in earnings,” said Ed Clissold, chief U.S. strategist at stock market research firm Ned Davis Research. “Earnings are very unlikely to decline but the growth rate is going to slow. So any sign that that inflection point is here is going to be viewed negatively by the market.”
The economic backdrop did little to buoy investors’ spirits, either. In Europe, a dormant debt-based political crisis seems on the verge of reawakening after the European Union sent Italy’s budget back to its populist government on Tuesday. The E.U.’s administrative body told Rome it had to rewrite its proposed 2019 budget to reduce deficits, or face heavy fines.
Earlier, China’s stock market resumed its decline, sliding 2.3 percent. Hong Kong’s Hang Seng fell 3.1 percent. Japan’s Nikkei 225 dropped 2.7 percent, and South Korea’s Kospi declined 2.6 percent. The DAX in Germany, which has large trade exposure to China, fell by 2.4 percent, making it one of Europe’s worst-performing indexes for the day.
In the United States, the earnings picture wasn’t all bad. McDonald’s reported better-than-expected third-quarter profits and revenue, and its shares jumped. Pulte Homes rose 5 percent after it reported stronger earnings on higher home prices. And shares of Verizon rose more than 3 percent after its results exceed expectations.
But some of the strongest reactions came after corporate earnings disappointed investors.
“People have been assuming that both fourth quarter, and more importantly 2019 growth, in terms of G.D.P. growth and earnings, will continue along the path that it was on this year,” said Matt Maley, an equity strategist at brokerage firm Miller Tabak. “And now we’re hearing otherwise.”