Selloff in industrials, techs sends Dow down
Investors fear rising oil prices, other costs will slow profits.
NEW YORK — After a strong start, U.S. stocks abruptly sold off Tuesday after machinery maker Caterpillar said it doesn’t expect to top its first-quarter profit for the rest of the year. The Dow Jones industrial average plunged as much as 619 points as investors feared that rising oil prices and other costs will slow down growth in company profits.
Stocks climbed in early trading as companies like Caterpillar, appliance maker Whirlpool, and Fifth Third Bancorp posted strong quarterly results. Then Caterpillar executives told analysts on a conference call in the late morning that they don’t expect the company to report a larger per-share profit for the rest of 2018. Other industrial, technology and basic materials companies also took sharp losses.
The S&P 500 index sank 35.73 points, or 1.3 percent, to 2,634.56. The Dow Jones industrial average finished with a loss of 424.56 points, or 1.7 percent, to 24,024.13. The Nasdaq composite dropped 121.25 points, or 1.7 percent, to 7,007.35.
Small-company stocks held up better than the rest of the market. The Russell 2000 index declined 8.84 points, or 0.6 percent, to 1,553.28, about half as much as the S&P 500, which tracks large U.S. companies.
Caterpillar’s products are used in a wide variety of industries including construction, power generation, mining and oil and gas drilling. Meanwhile 3M, which makes Post-it notes and industrial coatings and ceramics, said the rising price of oil and other materials is affecting its business.
The companies’ statements came as interest rates kept rising, which makes it more expensive for companies to borrow money. The yield on the 10-year Treasury note rose to 3 percent for the first time in more than four years.
Stocks shot up at the end of 2017 and the start of 2018 as investors bet that the corporate tax overhaul would lead to bigger profits for American companies and greater economic growth. Gina Martin Adams, chief equity strategist for Bloomberg Intelligence, said it hasn’t happened yet.
“We’re not yet seeing a very strong recovery in the broader economic numbers that would suggest the impact of tax reform is more than just temporary,” she said. “The market is very impatient.”
Adams said the tax cuts may help stocks later on, but investors always want to see better and faster growth, and now they’re not sure where that improvement will come from.
The worries began to set in after construction and mining equipment maker Caterpillar said it doesn’t expect to top its first-quarter profit for the rest of this year. Industrial and basic materials companies and technology firms took some of the worst losses.
Wall Street had cheered Caterpillar’s results earlier in the day after the company had a strong first quarter and raised its forecasts for the year. But the stock gave up those gains and finished with a loss of 6.2 percent at $144.44.
3M shed 6.8 percent to $201.13. Chemical companies and other materials makers could also see their profits affected as oil prices and other expenses rise. DowDuPont shed 3.7 percent to $63.1. Elsewhere, aerospace company Boeing lost 2.9 percent to $329.06.
Bond prices slipped again Tuesday. The yield on the 10-year Treasury note rose to 2.99 percent from 2.98 percent. Earlier it peaked at 3 percent for the first time since January 2014.