Bulldozer builder Caterpillar and chipmaker Nvidia signaled warnings about the Chinese economy, and that hit US stocks on Monday. Though both companies come from different business domains, the message they are conveying is the same, that of a Chinese slowdown. The warnings mean that investors could see more such U.S companies which have invested heavily in the Chinese economy make less profit as most of the business for these companies come from China. Once the warnings were sounded, the shares of both the companies sank. Earlier Apple, FedEx and other leading companies in the technology sector had earlier raised the concern of a global slowdown as most of these companies to depend on the Chinese to drive their revenues.
The shares of the bulldozer, dump truck and excavators building company Caterpillar fell by close to 9% after it published it quarterly reports which fell below the expectations. The Asia Pacific region was the only place where they saw a dip in profits. Meanwhile another industrial giant Deerfield, Ill said that its sales would be flat this year.
Nvidia which is a chipmaker for graphics for games reduced its revenue expectations for the fourth quarter by 0.5 billion dollars to $2.2 billion. That made the shares dip by close to 14%. The company spokesperson said that the reason behind fall in demand for graphics chips is ‘deteriorating macroeconomic conditions, particularly China.’ Meanwhile, Senior portfolio manager of a US bank says that ‘The negative forecast from Caterpillar and Nvidia point to those areas of concern with trade, global economic activity and potential impact of a strong dollar.’
The growth estimates are at 5.6% against the 7.3% that was estimated for S&P 500 companies at the beginning of the year. The days to come will see more pain as per analysts. Apple and Advanced Micro Devices Inc will announce their results shortly. So will Wynn resorts which get most of its revenue from China, McDonald’s where 18% of revenue is got from China and Boeing which derives 13% of its revenue from the Chinese economy. The technology which is the hardest hit has an estimated profit growth of 1.5%.
The health of the Chinese economy which is the second largest economy in the world plays a significant role in the US stock market and is seen as a key risk factor in 2019 stock market fortunes.