US close: Markets in the red as Caterpillar, chipmakers sink

US stocks finished well into the red on Monday, as investors eyed this week's trade talks between the US and China and a slew of earnings releases - including a major earnings miss by one of the Dow's major blue chip outfits and one of Wall Street's tech darlings.

Dow Jones I.A.

42,174.65

04:30 15/10/20

n/a

Nasdaq 100

20,200.30

09:15 05/11/24

1.19%

236.70

The Dow Jones Industrial Average ended the session down 0.84% at 24,528.22, the S&P 500 was off 0.78% at 2,643.85, and the Nasdaq 100 was 1.33% lower at 6,697.09.

US stocks were heading south from the opening bell earlier, after the President warned that another government shutdown could be on the horizon, just days after the nation's longest had drawn to a close.

There was also a massive earnings miss by Caterpillar, which took a significant chunk out of the Dow.

Blaming "lower demand" in China, the maker of construction and mining equipment said that sales in Asia/Pacific fell during the quarter.

“With so much to focus on this week, it could get quite volatile in the markets,” said Oanda analyst Craig Erlam earlier.

“Wednesday’s Fed decision may be the least impactful of the lot, with the central bank having indicated that it’s going to take a more patient approach to tightening and with no fresh projections due until March, it may just sit this one out.”

Erlam explained that, while the jobs report on Friday would still attract attention, the numbers were “highly likely” to be skewed by the shutdown so would be taken with a pinch of salt.

“That leaves the two big events this week, the vote in UK parliament on Theresa May’s plan B - and the amendments to it that are put forward - and the high-level trade talks in Washington, with Vice Premier Liu He leading a delegation.”

Although the temporary government shutdown came to an end on Friday, investors were seemingly still on edge after Trump told the Wall Street Journal over the weekend that another shutdown was "certainly an option".

Meanwhile, Sino-US relations were also in focus as Vice-Premier Liu was set to meet US Trade Representative Robert Lighthizer in Washington on Wednesday for two days of talks.

On the data front, the Dallas Fed manufacturing business index for January showed that broader business conditions in the area had bounced back from lows in December.

The general business activity index rebounded from a multiyear low of -5.1 in December to 1.0 in January, according to the Federal Reserve Bank of Dallas.

The near-zero reading seemed to suggest that manufacturers in the Dallas region were fairly balanced in their assessment of whether activity had improved or worsened from last month.

In corporate news, Caterpillar shares tanked 9.13%, after it reported a big earnings miss before the bell.

The company's guidance for the next quarter also fell short of analysts' estimates.

Shares in technology company Nvidia were also lower, erasing 13/82% as it cut its revenue guidance due to "deteriorating macroeconomic conditions", mostly in China.

In an update for the fourth quarter of fiscal 2019, the group said it now expects revenue of $2.2bn, down from previous guidance of $2.70bn as consumer demand for its graphics processing units has taken a hit as a result of a "crypto hangover".

Adding Nvidia's poor performance to Apple's warning earlier in the month, fellow chipmaker Advanced Micro Devices was also down 7.98% in early trade, while Intel and Texas Instruments were both weaker by 0.7% and 1.66%, respectively.

Investors were also holding their breath ahead of a report from tech giant Apple on Tuesday.

Russ Mould, investment director at AJ Bell, said investors will be looking for some reassurance after the profit warning earlier this month, with the important numbers not being those for the first quarter, but any guidance from boss Tim Cook about the second quarter and beyond.

"Using the midpoint of the revised guidance provided by Tim Cook on 3 January, Apple is expected to record an earnings per share figure of $4.16 for its fiscal first quarter," he said.

"That still represents year-on-year growth of some 7%, despite the 10% downgrades implied by the trading alert, but all of that increase comes from a drop in the tax charge and a lower share count following the company’s massive share buyback scheme."

Dow Jones - Risers

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Boeing Co. (BA) $362.90 1.29%
JP Morgan Chase & Co. (JPM) $103.87 1.11%
Goldman Sachs Group Inc. (GS) $199.72 0.97%
American Express Co. (AXP) $100.39 0.67%
Travelers Company Inc. (TRV) $125.03 0.52%
3M Co. (MMM) $193.20 0.35%