"Every time we get earnings stating China as a problem, investors start to realize that issues with China are going to spread and without China growing at a good clip it will be hard for the global economy and the U.S. to continue an expansion", said Ryan Nauman, market strategist at Informa Financial Intelligence in Zephyr Cove, Nevada. Caterpillar saw its worst sell-off in seven years Monday.
The slowdown is adding to Caterpillar's problems, and its fourth-quarter profit fell short of Wall Street expectations.
Stock indexes sank Monday after twin announcements highlighted how much China's slowing economic growth is hurting profits for USA companies.
China's economy cooled in the fourth quarter under pressure from faltering domestic demand and bruising USA tariffs, dragging 2018 growth to the lowest level in almost three decades.
The South Korean company has been losing share for its smartphones for years in China, but the slowdown there is now threatening to hurt its crucial chips business.
"Many analysts had been saying it could surprise to the downside particularly with regards to what's occurring in the IT space and demand for USA product in China and that looks like its played out", market research firm Lincoln Indicators chief executive Elio D'Amato told Trading Day.
Rising material costs, partly due to tariffs, and higher freight expense increased the company's manufacturing costs more than it had expected, said executives on the conference call.
"China's growth slowdown could be faster than expected especially if trade tensions continue, and this can trigger abrupt sell-offs in financial and commodity markets" - something that happened when Chinese growth sputtered in 2015, said International Monetary Fund chief economist Gita Gopinath last week. Apple Inc. said recently that iPhone slipping in China, a rare warning of from the tech giant that posts quarterly earnings Tuesday.
"In 2018, Caterpillar achieved record profit per share and returned significant levels of capital to shareholders", said Caterpillar chairman Jim Umpleby. Some analysts argue these spikes in expenses aren't really one-time because restructuring is a cost of doing business for a cyclical manufacturer and stripping out the impact of that from earnings numbers can do more to muddy the conversation than clarify it.
Yesterday in Japan, Alps Alpine Co, a supplier of electronic parts to automakers and Apple, cut its operating profit forecast for the year by 24 percent, blaming the US-China trade dispute and Brexit. Its 2019 profit forecast of $11.75 to $12.75 also came below the market estimate of $12.73.
Caterpillar Inc., based in Deerfield, Illinois, anticipates 2019 earnings in a range of $11.75 to $12.75, roughly in line with expectations. Sales for the year are expected to increase modestly.