Stocks Drop on Weak Industrial Earnings; Tech Skid Resumes

Traders on the floor of the New York Stock Exchange, Thursday. (Reuters/Brendan McDermid)

U.S. stocks are sharply lower Thursday as technology and internet companies, industrials, and companies that rely on consumer spending all skid.

Aircraft maker Textron and tool maker Snap-On slumped after releasing their quarterly reports, and other big manufacturers also traded lower.

Trading remains volatile, and the S&P 500 is essentially flat this week even though it’s only been two days since its biggest one-day rally in six months.

KEEPING SCORE: The S&P 500 index shed 38 points, or 1.4 percent, to 2,771 as of 12:15 p.m. Eastern time. The Dow Jones Industrial Average lost 336 points, or 1.3 percent, to 25,369. The Nasdaq composite sank 141 points, or 1.9 percent, to 7,500. The Russell 2000 index of smaller-company stocks declined 22 points, or 1.4 percent, to 1,566.

INDUSTRIAL WOES: Aircraft maker Textron slid 9.2 percent to $58.81 after its profit and sales fell far short of analyst forecasts. The company said its aerospace and defense business and its industrial business both weakened. Tool and diagnostic equipment company Snap-On lost 7.4 percent to $155.14 after it posted lower revenue than analysts expected, and United Rentals fell 9.7 percent to $124.40 after its report.

Industrial and basic materials companies have taken bigger losses than any other part of the market over the last month, and one reason is that investors feel they are especially vulnerable in the ongoing trade dispute between the U.S. and China. Higher tariffs on metals can hurt the sales of companies like Alcoa and also drive up costs for companies that use those metals to make other kinds of machinery.

GROWTH WOES: Stocks have skidded over the last two weeks, and there are signs investors are worried about future economic growth. The S&P 500 has fallen 4 percent in volatile trading since Oct. 3, and the companies that have done the worst over that time include technology, industrial and energy companies. Those companies tend to do better when the economy is growing more quickly and consumers and businesses have more money to spend.

Video game maker Activision Blizzard lost 6.8 percent to $72.95 and Apple fell 2.3 percent to $216.06.

The stocks that have held up the best include utility and household products companies. They don’t depend as much on economic growth, as consumers are likely to use about the same amount of electricity and buy the same amount of toilet paper or cereal regardless of the state of the economy.

Duke Energy added 0.8 percent to $81.45 and cigarette maker Philip Morris jumped 3.2 percent to $87.30 after a strong third-quarter report.

The recent gains for those stocks is notable because the market’s slump began when interest rates started rising quickly. Utility companies and other defensive stocks often struggle when interest rates are rising. The companies are known for paying big dividends, similar to bonds, so when rates rise, investors often sell those stocks and buy bonds instead.

WHAT DOES THE FED SAY? Interest rates started rising a day ago after the Federal Reserve released minutes showing that a minority of its leaders think interest rates will need to keep rising to a level that slightly restricts economic growth. That would affect stocks because it means smaller corporate profits and less spending by consumers.

Bond prices recovered after an early slip Thursday. The yield on the 10-year Treasury note rose as high as 3.22 percent but later traded at 3.17 percent, about the same as late Wednesday.

The Fed has been gradually raising interest rates since the end of 2015 after keeping them near zero for seven years in the wake of the global financial crisis. Low rates contributed to the U.S. economic recovery and to big gains for stocks over the last decade, as low rates made bonds relatively unappealing.

ALUMINUM SHINING: Aluminum producer Alcoa rose 7.1 percent to $39.30 after it topped Wall Street projections in the third quarter. The company also said it will buy back $200 million in stock. Alcoa’s stock has slumped over the last six months as the U.S. announced tariffs on imported steel and aluminum, which is reducing the company’s profits because it has several facilities in Canada.

CHINA CURRENCY FALLS: China’s politically sensitive yuan fell to a 22-month low against the dollar after the U.S. Treasury declined to label Beijing a currency manipulator.

ENERGY: The price of U.S. crude oil lost 0.7 percent to $69.28 per barrel in New York, its lowest in a month. Brent crude, the international standard, lost 0.5 percent to $79.65 per barrel in London.

CURRENCIES: The dollar dipped to 112.14 yen from 112.49 yen. The euro fell to $1.1494 from $1.1507.

OVERSEAS: Germany’s DAX dipped 1.1 percent and the French CAC 40 lost 0.6 percent. The FTSE 100 in Britain slipped 0.4 percent.

Japan’s Nikkei 225 index sank 0.8 percent and the Kospi in South Korea lost 0.9 percent. Hong Kong’s Hang Seng index was little changed.

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