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Dow Wobbles as Trade War Sinks Its Fangs Into Corporate Earnings

Last Updated September 23, 2020 1:10 PM
Josiah Wilmoth
Last Updated September 23, 2020 1:10 PM

The Dow failed to secure a strong recovery on Wednesday after a new batch of quarterly earnings reports confirmed that the trade war has begun to eat into profit margins.

Dow Wavers as Core Stocks Report Earnings

Wall Street’s major indices remained little changed during the morning hours. The Dow Jones Industrial Average rose 7.64 points or 0.03% to 26,795.74, extending the nervous sentiment from a mixed futures session.

dow jones industrial average chart
The Dow edged higher on Wednesday but failed to mount a healthy recovery. | Source: Yahoo Finance 

The S&P 500 dipped 0.28 points or 0.01% to 2,995.71 but remains within striking distance of its all-time high.

The Nasdaq declined 7.49 points or 0.09% to 8,096.80.

Safe-haven asset gold took advantage of the cautious mood, rising 0.48% to $1,494.70, while the oil price slid 0.9% to $53.99 and Treasury yields were flat across the board.

Caterpillar Slashes Guidance, Blames ‘Economic Uncertainty’

The Dow struggled to build momentum after multiple core stocks reported worse-than-expected earnings.

Caterpillar, a bellwether that analysts often use as a barometer to evaluate how the trade war is affecting the US economy, missed estimates by a wide margin . The company reported earnings of $2.66 per share in the third quarter on revenue of $12.758 billion, far below the Refinitiv consensus expectation of $2.88 per share on revenue of $13.572 billion.

Moreover, Caterpillar slashed its full-year earnings guidance by more than 10% and warned shareholders that demand would not improve in the fourth quarter. Executives blamed “global economic uncertainty” for the disappointing results and gloomy outlook.

Investors must have been fearing worse, because CAT shares rose 0.75% following the opening bell. Nevertheless, the results are just the latest indication that the trade war is hurting US companies – not just China.

One day earlier, Hasbro stock – which is included in both the S&P 500 and Nasdaq indices – plunged nearly 17% after the toymaker blamed its 15% earnings miss on tariffs. The trade war wasn’t the only factor pressuring the company, but its substantial exposure to China factored into its dismal quarter .

Pimco: Meaningful Trade Deal Will Be ‘Hard to Come By’

President Trump and Chinese President Xi Jinping are expected to take the first step toward unraveling the conflict next month by signing a partial trade deal that addresses a few minor disagreements.

However, Dan Ivascyn, group chief investment officer at Pimco, told Financial News that the trade war would continue to rank among the stock market’s most significant threats , especially if tensions reescalate.

“We think you could see a continued attempt to reduce some of the more negative rhetoric to calm markets further, but any type of significant deal is going to be very hard to come by,” Ivascyn said.

In the meantime, Wall Street expects the Federal Reserve to stimulate the market next week by cutting interest rates at a third straight policy meeting.

Right now, fed funds futures imply a nearly 95% chance of a rate reduction, which would lower the bank’s target range to 150 to 175 basis points.

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