U.S. Stocks Drop Amid Geopolitical Tensions
Losses in energy and financial shares drag down Dow industrials as tech stocks edge up
By Will Horner and Michael Wursthorn
Updated Oct. 22, 2018 4:45 p.m. ET
After initially opening higher, mounting losses among Goldman Sachs Group, Exxon Mobil and other financial and energy firms sapped the Dow industrials of an early gain, eventually pulling the blue-chip index down 208 points.
While some of those stocks pared deeper losses, the Dow industrials still closed down 126.93 points, or 0.5%, to 25317.41 on Monday, putting the closely watched index on poor footing to start the week.
For investors, Monday’s losses have cast some doubt on whether another quarter of strong earnings are enough to get the Dow, the S&P 500 and other major indexes back into record-setting territory. A combination of worries—from ongoing trade tensions to concerns about Italy and fresh geopolitical tensions between the U.S. and Saudi Arabia—have made October one of the most volatile months for stocks this year, knocking the Dow industrials off more than 5% from its early-October record high.
“There was hope we’d get a little more of a bounce from earnings,” said Larry Peruzzi, a managing director at Mischler Financial Group. “But the market is more concerned with where fourth-quarter earnings might end up.”
The Dow fell a third session out of the last four trading days, a stretch that has seen more than 450 points fall off the blue-chip index. The S&P 500 fell 11.90 points, or 0.4%, to 2755.88.
Growth and tech issues moved higher Monday, but those advances were battled to a draw in the broader indexes by losses in financial and energy shares.
Growth and tech issues moved higher Monday, but those advances were battled to a draw in the broader indexes by losses in financial and energy shares. Photo: Michael Nagle/Bloomberg News
The Nasdaq Composite, however, added 0.3%, as technology and other growth companies fared better, snapping the index’s three-session losing streak.
While S&P 500 companies are expected to report another quarter of double-digit profit growth, the earnings boom that helped power much of the broad index’s 3.3% gain this year is showing signs of fading. After the third quarter, earnings and sales expansion across the index are set to come down, with growth decelerating even further in 2019, once companies lose the immediate benefits of the sweeping corporate tax cut, according to FactSet.
Take Halliburton , for example, which reported third-quarter revenue and profits ahead of analysts’ expectations, while the company said demand for some of its services came in weaker than expected, weighing on its outlook for the rest of the year. Halliburton shares fell 3.2% in recent trading.
Investors took the warning as a sign of bigger problems throughout the energy sector, pulling the S&P 500 sector down 1.1%.
Financial stocks also struggled, with many giving up some of their post-earnings gains from last week and as bond yields showed signs of stabilizing.
Shares of Synchrony Financial fell 6%, even though earnings had come ahead of expectations on Friday, while Goldman Sachs fell 2.4%.
Financial declines were broad enough to send the KBW Nasdaq Bank Index of large U.S. lenders down 2.7%.
Investors are expected to look more closely at the slate of earnings announcements due this week, analysts said. About 36% of the market capitalization of the S&P 500 is expected to report earnings this week, according to BlackRock . Tech giants like Alphabet and Amazon.com are expected to report quarterly results later this week.
The losses followed mostly upbeat trading in Asia after proposed Chinese tax cuts drove bumper gains for Chinese equities. European equities, which had been trading higher following the news, also turned lower soon after trading began in the U.S.
The Shanghai Composite rose 4.1%, its biggest one-day percentage gain since March 2016, continuing a rally in Chinese stocks that began late last week. Hong Kong’s Hang Seng added 2.3%, while Japan’s Nikkei gained 0.4% to snap a two-day losing streak.
“When it comes to thinking about Chinese stimulus, the government is finally starting to get the message and is focusing on tax reform and away from investment,” said Geoffrey Yu, head of the U.K. investment office at UBS Global Wealth Management. “If this can help the Chinese household it doesn’t just help China, it helps the world.”
Corrections & Amplifications
Several high-profile names have pulled out of the “Davos in the desert” due to the killing of Saudi journalist Jamal Khashoggi. An earlier version of this article spelled Mr. Khashoggi’s name incorrectly.
Write to Michael Wursthorn at
Michael.Wursthorn@wsj.com