U.S. stock indexes drop as economic, earnings worries rise

BUSINESS

U.S. stock indexes drop as economic, earnings worries rise

Annabelle Liang The Associated Press
Published Thursday, February 7, 2019 12:14AM EST Last Updated Thursday, February 7, 2019 11:52AM EST

This is a file image of various stocks.

Text:

NEW YORK -- U.S. stock indexes sank in morning trading Thursday, following European markets lower, as pessimism built about the strength of the global economy and upcoming earnings reports. Traders sought safety in U.S. government bonds, sending yields lower.

European officials slashed their forecast for economic growth in the euro zone this year, and the Bank of England warned that the British economy is set for its weakest growth in a decade. They're the latest flashpoints of worry as investors gird for predicted slowdowns in economies around the world, including the United States.

In U.S. markets, sharp drops for Twitter and energy stocks weighed on the S&P 500 index, which broke a five-day winning streak on Wednesday. Twitter gave a better-than-expected earnings report for its latest quarter, but its stock price tumbled after it said revenue for this quarter may fall short of some analysts' estimates.

Twitter's discouraging forecast fed into growing concerns across the market that earnings at U.S. companies will weaken in the first three months of this year.

KEEPING SCORE: The S&P 500 fell 1 per cent as of 11:12 a.m. Eastern time, and was on pace for its worst day in more than two weeks.

The Dow Jones industrial average lost 207 points, or 0.8 per cent, to 25,183, and the Nasdaq composite fell 0.8 per cent.

ECONOMIC WORRIES: European stock markets tumbled after the European Union's commission slashed its forecast for economic growth in the 19 countries that use the euro this year to 1.3 per cent from an earlier forecast of 1.9 per cent. A weaker-than-expected report on industrial production in Germany also raised concerns.

In London, the Bank of England cut its forecast for growth this year to 1.2 per cent from an earlier forecast of 1.7 per cent. That would be its slowest growth since 2009, and the bank said it sees a one-in-four chance of slipping into a recession this year.

In the U.S. meanwhile, a report showed that the job market remains strong as fewer Americans applied for unemployment benefits last week, a sign that layoffs are low. But many economists expect the U.S. economy to slow this year as well, along with economies around the rest of the world.

BLOCKED: Twitter sank 10.3 per cent for one of the biggest losses in the S&P 500 after it said its monthly user base fell to 321 million during its latest quarter from 330 million a year earlier. It also said it expects to make $715 million to $775 million in revenue during the current quarter. Analysts are expecting $765 million, according to FactSet.

EARNINGS WORRIES: It's not just Twitter that investors are getting concerned about. Across the S&P 500, analysts are forecasting earnings per share to drop 1.8 per cent in the first quarter from a year earlier. They were calling for growth just a few weeks ago, and if the updated forecasts prove true, it will be the first decline in nearly three years.

Any decline would also be a sharp drop-off from the 12.9 per cent growth that S&P 500 companies are expected to report for the quarter of 2018.

INTEREST RATES: All the concerns sent investors toward Treasury bonds, which are seen as safer investments during tumultuous times. When a bond's price rises, its yield falls, and the yield on the 10-year Treasury note fell to 2.66 per cent from 2.69 per cent late Wednesday.

TRADE TALKS: Stocks around the world have heaved up and down recently on concerns about U.S.-China trade tensions. U.S. Treasury Secretary Stephen Mnuchin and trade representative Robert Lighthizer will lead a delegation to Beijing next week for the next round of trade talks, but the issues are complex. These include contentious topics like Beijing's technology policy and trade practices, where progress has been limited so far.

Mnuchin also said that there were no plans for President Donald Trump to meet Chinese leader Xi Jinping. "If there are remaining issues that we can't get closed, I think President Trump expects that he's going to sit down with President Xi and address those issues," he said.

ENERGY: Benchmark U.S. crude oil dropped 1.6 per cent, and natural gas sank 2.7 per cent. That helped drag energy stocks in the S&P 500 down by 2 per cent, the worst decline among the 11 sectors that make up the index.

------

AP Writer Annabelle Liang contributed from Singapore