Caterpillar's tumble sparks a slide in U.S. stocks

/ CBS/AP

U.S. projected to fall as economic leader

New York – A profit warning from Caterpillar — a bellwether for U.S. industrial companies – helped stocks chalk up big losses on Monday. The heavy equipment maker cautioned that higher costs related to tariffs would hurt its bottom line. A similar alert from chipmaker Nvidia led the tech sector lower on Wall Street. Both companies cited slowing sales in China, the world's second-largest economy, as a stumbling block.

China is facing its worst economic slowdown since the global financial crisis, and the impact is being felt widely among the many U.S. companies that rely on that country for sales, especially industrial and technology firms. Exacerbating China's economic slowdown are the continuing trade tensions between Washington and Beijing.

In the July-September period, China's economy expanded at 6.5 percent, the slowest pace since the financial crisis.

On Monday, the S&P 500 index lost 21 points, or 0.8 percent, to close at 2,644. The Dow Jones industrials dropped 209 points, or 0.8 percent, ending at 24,528. The Nasdaq composite fell 79 points, or 1.1 percent, to finish at 7,086.

Spreading impact from China woes

Caterpillar and Nvidia joined a growing list of U.S. companies seeing damage to their results because of weakness in China. Apple recently warned that iPhone sales are slipping there.

The slowdown is adding to Caterpillar's problems, and its fourth-quarter profit fell short of Wall Street expectations. Caterpillar shares slumped 9 percent to end at $124.57 on Monday. The stock is down 18 percent over the last 12 months, compared with a 7 percent drop in the S&P 500. Deere, a key competitor, fell 3.1 percent to $156.49.

In lowering Nvidia's revenue forecast, CEO Jensen Huang called the quarter "extraordinary, unusually turbulent, and disappointing." The stock fell 1X.X percent to $13X.32.

Tech giants Microsoft and Apple were also weighed down by China concerns. Microsoft fell 2 percent to $105.08, and Apple shed 0.9 percent to $156.30

Kristina Hooper, chief global market strategist at Invesco, expects a "widespread" impact from the global slowdown. "This, if nothing else, is putting more emphasis and focus on U.S.-China trade talks this week," she said.

Talks aimed at resolving the impasse over Chinese technology policy and other issues are due to resume in Washington this week, led by the U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He. Analysts say there might be moves to trim China's massive trade surplus with the U.S. that could stave off further hikes in punitive tariffs imposed by both sides.

However, they expect gaps to remain on key problems such as China's blueprint for state-led development of leading technologies.

"Canary in the coal mine"

Apple was "the canary in the coal mine" when it warned earlier in January of lagging sales in China because of the weakening economy there. As the dispute continues, all sectors will likely feel an impact from higher costs.

Airlines bucked Monday's downward trend and turned higher as the federal government reopened after a five-week shutdown. The industry had been facing a shortage of TSA workers, making for longer lines at airports. There were also reports of a shortage of air traffic controllers.

Fear of a potential recession took its toll on the stock market at the end of 2018, with a steep slide in every U.S. indicator. The S&P 500 fell 12.4 percent through most of December, before recovering some of those losses in January. The Nasdaq and Dow both followed similar patterns.

The latest corporate warnings over China's economy and a new report from Washington could help feed investors' growth fears. The Congressional Budget Office predicts that the U.S. economy will grow by only 2.3 percent this year, marking a significant slowdown from 2018's 3.1 percent.

In Europe, the threat of a continued economic slowdown has been hanging over what is an already contentious situation with Britain's expected departure from the European Union in March. Economic growth in Europe slowed in the last half of 2018, and indicators at the start of this year have been weak.

U.S. crude oil fell 3.3 percent to $51.90 per barrel in New York on Monday. Brent crude, used to price international oils, fell 3.2 percent to $59.66 per barrel in London.

The British FTSE lost 0.1 percent. Germany's DAX fell 0.6 percent, and France's CAC 40 fell 0.78 percent. Japan's Nikkei 225 stock index fell 0.6 percent. Hong Kong's Hang Seng rose 0.03 percent, and South Korea's Kospi fell 0.02 percent.

Bond prices rose. The yield on the 10-year U.S. Treasury note ended at 2.75 percent.

First published on January 28, 2019

© 2019 CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.

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