Stocks climbed back up Tuesday, but still ended lower, after an early plunge that sent the Dow Jones Industrial Average down more than 500 points.
Caterpillar and 3M released lower earnings outlooks, contributing to the sell-off. The companies were the biggest decliners in the 30-company Dow average, with leaders citing rising costs because of tariffs on imported steel.
Despite the rebound late Tuesday afternoon, the latest selling extended the market's recent string of losses, including a four-day down period for the benchmark S&P 500 index. In response to the broad sell-off, traders cited uncertainty regarding slowing economic growth in China and rising costs related to President Donald Trump's trade policies.
From July to September, China’s economy grew 6.5 percent, the slowest pace since early 2009.
"There's tremendous concern of how this fall-out from the world's second largest economy may spread to the rest of the global economy," said local investment adviser Mark Grywacheski, with Quad-Cities Investment Group. "The global economy overall is still relatively strong, but there are concerns that the global economy is showing signs of strain. One of the key factors of the strain is the global trade disputes with China, the European Union, Canada and Mexico."
China's economy was slowing before the Trump Administration's tariffs were announced, while the U.S. economy was growing. But escalating trade tension has taken a bite out of major U.S. companies, including two with Quad-City connections, Caterpillar and 3M. Both companies lowered earnings outlooks, sending shares of both companies tumbling.
Grywacheski said both "3M and Caterpillar's earnings are contributing to the further downward decline in the stock market, but for different reasons."
"3M completely missed its earnings expectations. It reported lower revenues; it reported lower earnings than the market was expecting," he said. "3M also lowered its earnings outlook for the rest of the year and into the start of 2019. So it's bad third quarter results and bad forward guidance."
3M fell 6.6 percent by mid-day Tuesday. The manufacturer cited rising material costs and estimated tariffs to take a $100 million toll on costs next year.
Caterpillar, on the other hand, saw shares plunge despite meeting third quarter earnings expectations.
"Caterpillar actually had tremendous third quarter results. It reported the highest third quarter profit per share in its history," Grywacheski said. "It reported revenues and operating profits above what the market expected. So from the actual financial results in the third quarter, Caterpillar was stellar."
But the equipment manufacturer lost 7.6 percent after lowering its earnings outlook, saying new tariffs on imported steel were driving up costs. Trump has imposed tariffs on around $250 billion in Chinese imports, and Beijing retaliated by imposing tariffs on $110 billion in American goods.
"Caterpillar reaffirmed for 2018 that these global trade disputes will add $100 million to $200 million of tariff-related costs to their operations," Grywacheski said. "So even though there were these tremendous third quarter results, it was really these higher operating costs and higher manufacturing costs, primarily from these tariffs increasing the cost of steel."
The company has offset higher operating costs and rising interest rates by passing higher prices to consumers, he said, adding rising consumer costs are expected to continue into next year.
While markets have been stressed and manufacturers have taken a hit in recent weeks because of rising interest rates, inflation and the trade dispute, Grywacheski said the manufacturing sector remains strong. But Quad-City consumers might feel impacts of the trade dispute on a company-by-company basis, he said.
“Job growth and job creation within the manufacturing industry remains very strong,” he said. “What may impact the individual consumer is how specific companies may perform, and that’s why there’s this focus on the earnings season. From a broad landscape, manufacturing is doing well, but 3M is disappointing right now, and we’ll see what happens with Caterpillar. It all depends on how each company manages those higher costs.”
The Associated Press contributed to this report.