Stocks fell on Tuesday as corporate results from Caterpillar and 3M disappointed investors, but managed to recover most of their losses as McDonald’s and defensive stocks like Procter & Gamble all rose.
The Dow Jones Industrial Average dropped 102 points while the S&P 500 declined 0.5 percent. The Nasdaq Composite fell 0.4 percent. The small-caps Russell 2000 dropped 0.5 percent and turned negative for the year.
At its session lows, the Dow had fallen 548.62 points, while the S&P 500 and Nasdaq had lost more than 2 percent each. The comeback was led by McDonald’s, which rose more than 6 percent on strong earnings, and a half a percent gain in Procter & Gamble.
“We broke below that 2,700 level on the S&P 500 and buyers came out of the woodworks,” said Jeff Kilburg, CEO of KKM Financial. “I think people were waiting for this and are now more comfortable” buying at these levels. But while he finds the move to be impressive, Kilburg said there will be more volatility moving forward.
The S&P 500 was on pace for its fifth straight decline and briefly dipped below the lows hit earlier this month during this ongoing sell-off. The major indexes are all down at least 5.9 percent for October.
Caterpillar dropped 6.6 percent following the release of its results. The company said its manufacturing costs rose due to higher material and freight costs. Material costs were driven by higher steel prices and tariffs. This drop adds to Caterpillar’s steep monthly losses. Through Monday’s close, the stock is down 15.6 percent for the month.
The U.S. and China have implemented tariffs on billions of dollars worth of their goods this year, increasing costs for companies and raising fears that tighter global trade conditions could slow down the global economy. Negotiations between the two countries have stalled recently, increasing fears that this spat will be prolonged.
“We just look like we’re getting further away from a deal with China,” said Art Hogan, chief market strategist at B. Riley FBR. “The ramifications of a prolonged trade war are really seeping into investors’ minds right now.”
“I think we’re coming to a capitulation point,” he said.
Shares of 3M fell more than 3.5 percent after its quarterly earnings and revenue missed expectations. The company also trimmed its earnings outlook for 2018.
Continued selling in tech and financials shares also pushed futures lower.
Amazon, Nvidia, Alphabet and Twitter shares all traded lower as investors worried about valuations for high-flying technology names with interest rates on the rise.
Bank of America declined 1.1 percent and is now down more than 9 percent for October as investors fretted that rising mortgage rates would crimp loan growth. Higher short-term rates may increase competition for bank deposits as well. Banks led the market lower on Monday.
The latest bout of selling comes during the busiest week of the earnings season, with more than 150 members of the S&P 500 set to report. Of the companies that have reported thus far, 79.6 percent have topped analyst estimates for earnings, according to FactSet.
“US corporate earnings season has started with more of a whimper than a bang,” said Nick Colas, co-founder of DataTrek Research, in a note. “Yes, companies are beating expectations, but by less than usual.”
“This week has the chance to turn things around with 32% of the S&P 500 reporting. Still, it is now clear that we are past peak earnings momentum,” Colas added.
Global markets were also on edge amid geopolitical tensions surrounding Saudi Arabia.
Investor focus is largely attuned to developments in Saudi Arabia, after the country confirmed Jamal Khashoggi, a journalist and critic of the Saudi regime, was killed in the country’s consulate in Istanbul, Turkey.
European and Asian shares retreated on Tuesday as sentiment soured amid the escalating geopolitical worries. Europe’s Stoxx 600 fell to its lowest level since December 2016 in early morning trade, with concerns over Italy’s fiscal plans and Brexit also depressing sentiment, while Asian markets saw broad losses.