Corporate warnings about China’s sluggish economy hit stocks on Monday as the battle between the world’s largest economies over trade and technology continued to weigh on the outlook for growth and profits.

The warnings, which came from the chipmaker Nvidia and the bulldozer builder Caterpillar, concerned very different sectors of China’s economy. But the message was nearly the same, as was the sharp tumble in shares, which made them the two worst performing stocks in the S&P 500. The broad index dropped almost 0.8 percent on Monday.

Nvidia, which makes technology that allows computers to quickly render graphics for games, cut its expectations for revenue in the fourth quarter by roughly half a billion dollars, to $2.2 billion, sending its shares down nearly 14 percent. The Santa Clara, Calif., company cited “deteriorating macroeconomic conditions, particularly in China,” for hampering demand for such graphics-processing chips.

Shares of other chipmakers — which derive large chunks of their revenue from sales in China — fell in sympathy with Nvidia. Advanced Micro Devices tumbled almost 8 percent, helping to make the information technology sector one of the worst-performing parts of the S&P 500 on Monday.

Meanwhile, Caterpillar, which builds bulldozers, excavators and dump trucks, was down 9 percent after the quarterly profit it reported on Monday fell short of the expectations of Wall Street analysts.

The Deerfield, Ill., industrial giant also undershot analyst expectations for its full-year profit forecast. The company said it now expected construction equipment sales in China — somewhere between 10 percent and 15 percent of all of the companies’ construction sales — to be flat in 2019.

The health of the Chinese economy, which is the world’s second largest, has emerged as a key risk to the American stock market in 2019. Last year China grew at its slowest pace in 28 years, as it continues shift away from the model that drove the country’s economic rise in recent decades, focusing on industrial exports. It has pushed toward a model that relies more on consumer spending.

That transition has been made even more difficult by the eruption of a tariff war with the United States under President Trump. Originally that fight was centered on cutting China’s longstanding trade surplus with the United States, but has more recently expanded to tough-to-resolve issues around determining technological dominance, which would be even more difficult to solve anytime soon.

The re-emergence of investor concerns around China have helped cool what was a sizzling start to the year for the American stock market. Through the first three weeks of the year, the S&P was up 6.5 percent, the index’s best start since 1987. It remains up more than 5 percent.

Source: Read Full Article