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Asian Selloffs Stain U.S. Indexes; Plus MMM, CAT, MCD

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Tuesday, October 23, 2018

Another down-leg overnight in Asian markets is dragging on U.S. indexes in the pre-market today, and pretty significantly: currently, the Dow’s implied open is -400 points, the Nasdaq -100 and the S&P 500 -40. All these numbers are subject to change throughout the day, of course, but for now they reflect global tensions, especially with regard to Chinese markets.

With the Shanghai down another 2.3%, Shenzhen -1.9% and the Hang Seng (Hong Kong) Index -3% — or an eye-popping 800 points — we see the region’s hopefulness of the past two trading days evaporate. Whereas tax cuts and other economic stimuli in the country had been seen as a comeback of sorts for the world’s second-largest economy, analysts now see these moves as a cushion for further downside. It would also stand to reason the ongoing trade war between China and the world’s largest economy, the U.S., has begun to affect real data.

We also see other Asian markets slipping overnight as well, with both South Korea’s stock market and the Nikkei index in Japan ratcheting down more than 2 1/2% overnight. Other factors toward negative trading bias include a slowing of the global economy, as well as a near-universal rebuke of Saudi Arabia following its treatment of a Saudi national and journalist for The Washington Post earlier this month. Markets are sensitive right now, and there appear to be no shortage of good reasons for this.

Another negative impact to our domestic markets this morning, especially in the Dow index, were a couple of disappointing Q3 earnings results among industry leaders. We also see a couple solid earnings beats, but they have not been enough to effectively counter the downward sentiment at this hour.

Industrials giant 3M Corp. (MMM - Free Report) posted very disappointing Q3 numbers this morning, with $2.58 per share missing the Zacks consensus estimate of $2.70. On the top line, revenues missed expectations by 3.2% to $8.15 billion in the quarter, also down from the $8.17 billion reported in the year-ago quarter.

This has caused the Zacks Rank #4 (Sell) company to downgrade full-year estimates — so look for its Zacks Rank to perhaps take another hit in the next couple days, depending on how analysts view this news — and pre-market trading to take shares down another 7%. 3M had already sold off 14% year to date. For more on MMM’s earnings, click here.

Heavy machinery major Caterpillar Inc. (CAT - Free Report) actually beat earnings and sales ahead of today’s opening bell — $2.86 per share beat estimates by 3 cents on +2% revenues to $13.5 billion — but lowered guidance for full-year 2018 has taken this stock down another 7% as well. Caterpillar, after enjoying multi-year highs early this year, looks to open down more than 20% year to date. The company has not missed an earnings estimate since Q4 of 2014, but nevertheless is taking a beating along with most of the rest of the Dow today. For more on CAT’s earnings, click here.

McDonald’s (MCD - Free Report) , on the other hand, is trading up in today’s pre-market following earnings and sales beats for its Q3: $2.10 per share topped the Zacks consensus by 6% while revenues of $5.37 billion outperformed estimates by 2.3% (although down from $5.75 billion reported in the year-ago quarter). The Zacks Rank #3 (Hold) company has not missed on earnings since Q2 of 2014; its stock is trading up roughly 2.5% at this hour in the pre-market. For more on MCD’s earnings, click here.

Mark Vickery
Senior Editor

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