Dow ends down 291 on earnings misses
The Dow Jones industrial average ended down 291 points Tuesday as earnings from a batch of big-name companies pulled stocks sharply down.
Earlier, the blue-chip index had skidded as much as 390 points as big-machinery maker Caterpillar (CAT) and consumer products giant Procter & Gamble (PG) slashed their sales and profit forecasts for 2015, moves that signaled to Wall Street that the weak global economy and strong dollar could dent U.S. growth and profits this year.
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The No. 1 reason for the Dow's weakness Tuesday was a spate of earnings misses from key companies in a variety of key sectors, says Alex Eppstein, an analyst at Schaeffer's Investment Research.
"A number of companies reported lackluster earnings and guidance this morning — including Dow stocks such as Caterpillar, Procter & Gamble and Pfizer — creating headwinds," Eppstein told clients.
The Dow ended the day 1.7% lower.
The Standard & Poor's 500 index fell 1.3% and the Nasdaq composite index took a 1.9% hit. All three major benchmarks are now well in the red for 2015.
Going into Tuesday, only the Nasdaq was in the black for the year. But now that index, which settled at 4681.50, is about 55 points shy of its Dec. 31 close. The S&P 500, at 2029.55, is about 29 below its end-of-2014 mark. The Dow ended at 17,387.21 Tuesday, 436 points below its Dec. 31 close.
For the moment, Wall Street is in the process of reworking its spreadsheets to price in slower global growth and lower corporate earnings for U.S. companies that do a large bulk of their business abroad. A strong U.S. dollar is hurting profitability of U.S. companies like P&G that do a lot of business in countries that have weaker currencies than the dollar, as profits earned abroad shrink when translated back into U.S. dollars.
Plunging oil prices are also causing havoc for U.S. companies, like oil exploration companies and firms such as heavy-machinery maker Caterpillar, that derive a large amount of their profit from oil-related businesses.
"Brutal day today for U.S earnings," is the way Paul Hickey, co-founder of Bespoke Investment Group sums up the negative start to trading Tuesday. All of the weak earnings reports, he adds, "are examples of the pain that's being caused for U.S. multinationals with high foreign revenues in a strong dollar environment."
Also worrying Wall Street is the fact that weak global growth and a strong dollar finally appears to be taking its toll on corporate earnings at home. The U.S. economy and U.S. companies had been viewed as the key driving force of the global economy in 2015. The move by U.S. companies like P&G and Caterpillar to lower their profit and sales guidance for the full year, therefore, is worrisome.
Investors were also digesting a mixed batch of economic reports including disappointing manufacturing news and rising consumer confidence.
Overseas, European markets also tumbled. France's CAC 40 dropped 1.1% and Germany's DAX tumbled 1.6%. Britain's FTSE 100 fell 0.6%.
Asian markets were mixed. Japan's Nikkei 225 index rose 1.72% to close at 17,768.30. Hong Kong's Hang Seng index fell 0.41% and the Shanghai Composite dropped 0.89%.
On Tuesday, Russian's government announced a plan that will see the economy return to a budget surplus in 2017. Finance Minister Anton Siluanov announced the government has adopted an anti-crisis plan that will freeze the level of spending.
The ruble was 1.2% lower against the dollar at 68.1 per dollar in early trading Tuesday while the MICEX stock index was 0.3% higher. The ruble is now worth half as much as a year ago.
Foreign markets continue to weigh weighing the implications of Sunday's election victory by Greece's anti-austerity Syriza party, which opposes Greece's international bailout plan. But concerns of a disastrous confrontation in which, say, Greece might stop repaying its loans or the eurozone stop funding Athens, eased after both sides said they were open to negotiation.
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Contributing: Associated Press