US stock markets fell heavily on Tuesday following a string of disappointing financial results from big bellwether companies, including Procter & Gamble, Caterpillar and Pfizer.
The Dow Jones Industrial Average was down 1.9% at 11.30am – its biggest intra-day drop since October. The Nasdaq was down 2% and the Standard & Poor’s 500 had lost 1.4%.
Investors were spooked by P&G, Caterpillar and Pfizer slashing sales and profit forecasts, signalling that 2015 US economic growth may not be as firm as expected.
Paul Hickey, co-founder of Bespoke Investment Group, said it was a “brutal day” for US earnings. He said the poor results and bleak forecasts were “examples of the pain that’s being caused for US multinationals with high foreign revenues in a strong dollar environment”.
Alex Eppstein, an analyst at Schaeffer’s Investment Research, said: “A number of companies reported lackluster earnings and guidance this morning – including Dow stocks such as Caterpillar, Procter & Gamble and Pfizer – creating headwinds.”
Caterpillar, known for its yellow excavators and trucks, said it was buffeted by the falling price of oil, which has more than halved in value to below $50 a barrel. Chief executive Doug Oberhelman said he was disappointed at missing the group’s profit forecasts: “The recent dramatic decline in the price of oil is the most significant reason for the year-over-year decline in our sales and revenues outlook.”
Caterpillar’s full-year profits fell 2% to $3.7bn. Shares in the company dropped 7.5%.
Procter & Gamble, the company behind Fairy washing-up liquid, Gillette razors and Pampers, warned that $1.4bn (£926m) would be knocked off this year’s profits as a result of rise in the dollar.
In the second quarter, P&G’s profits fell around 30% as a result of the surging dollar. The company generates around two-thirds of its sales outside domestic market. P&G’s shares were down 4%.
AG Lafley, who returned as chief executive of P&G in May 2013 after leaving the same position in 2009, is focusing the company on 70 to 80 brands and in the process of selling off up to 100 others including the Duracell battery business, which has been bought by Warren Buffett’s Berkshire Hathaway. But these changes were not enough to offset the impact of “unprecedented currency devaluations”, Lafley said of the three months to the end of December.
He said the outlook for the full year needed to be adjusted as he expected significant negative sales and earnings impacts from foreign exchange in the second half of its fiscal year.
“The outlook for the year will remain challenging. Foreign exchange will reduce fiscal 2015 sales by 5% and net earnings by 12%, or at least $1.4bn after tax. We have and will continue to offset as much of this currency impact as we can through productivity driven cost savings,” Lafley said. “And we will continue to invest in our businesses, brands and product innovation because it is the right thing to do for the mid- and long-term, while we deliver another year of strong cash returns to shareowners.”
Pfizer, the biggest US drugs company, cut 2015 sales forecasts to between $44.5bn and $46.5bn compared to $49.6bn in 2014. Pfizer’s shares were flat at $32.81.
The poor corporate results came as official figures showed orders for US durable goods, which economists treat as a proxy for business investment, dropped 3.4% in December following a 2.1% fall in November.
New York stock exchanges remained open on Tuesday despite many workers getting the day off due to the north-east snowstorm. The New York Stock Exchange has not shut down due to snow since 1996, according to the exchange’s website. With overnight travel bans in New York exchanges ran on skeleton staffs and diverted work to other offices.
