Wall St slides on disappointing earnings results

The ASX is set for a weak open as US stocks fell after two companies reported disappointing earnings results.

US stocks declined after corporate earnings disappointed. Picture: Spencer Platt/Getty Images/AFP.

A disappointing start to third-quarter earnings season battered US stocks overnight and dampened hopes for a rebound in corporate performance.

European markets also closed lower, although Britain’s FTSE 100 reached a record intra-day high as the weak pound boosted sentiment around exporters.

The Australian share market is set to follow global bourses lower, with ASX futures down 45 points at 7.30am (AEDT).

A pair of companies led declines in the US after announcing weaker-than-expected results. Alcoa, reporting its last earnings before splitting, said earnings and revenue grew less than expected and cut revenue targets, citing short-term industry challenges. Shares of the aluminum giant fell 11 per cent.

Shares of Illumina tumbled 26 per cent after the gene-sequencing company Monday cut its revenue guidance. The weak sales expectations pushed investors to sell across the broader market, weighing especially on the S&P 500 health-care sector, which fell 2.5 per cent, and the Nasdaq Biotechnology Index, down 4.4 per cent.

The Dow Jones Industrial Average fell 200 points, or about 1.1 per cent, to 18129. The S&P 500 lost 1.2 per cent and the Nasdaq Composite fell 1.5 per cent.

“We’re hoping to see improvement this earnings season. It’s not where you want to start,” said Jeff Carbone, co-founder of Cornerstone Financial Partners.

Companies in the S&P 500 are expected to report an earnings decline for the sixth consecutive quarter, according to analysts polled by FactSet.

As recently as June, analysts estimated corporate earnings growth would return to positive territory for the third quarter.

For the quarter, energy companies are once again the biggest driver of the profit slump, reporting the largest year-over-year earnings decline of all sectors in the S&P 500.

Stocks have largely tracked the price of oil in 2016, falling in tandem in the first several weeks of the year before rebounding together. On Tuesday, US crude oil fell 1.1 per cent to $US50.79 a barrel following a report from the International Energy Agency suggesting global supplies rose in September. Energy stocks in the S&P 500 fell 1.2 per cent, nearly erasing Monday’s gains.

Oil prices had hit a one-year high in the previous session on news that Russia would support the Organization of the Petroleum Exporting Countries’ attempt to cut its collective output.

Tuesday’s decline in commodity prices also came as the WSJ Dollar Index, which measures the dollar against a basket of 16 currencies, rose 0.8 per cent.

Analysts attributed the dollar’s strength to rising expectations for higher US interest rates this year.

The Federal Reserve in September acknowledged a rate increase was likely before the end of the year, and recent comments from Fed officials and US economic data have heightened investors’ expectations for a move in December.

Federal Reserve of Chicago President Charles Evans said Tuesday the US economy is on a sound footing and a December rate increase “could be fine.” The Fed is scheduled to release the minutes from its September meeting on Wednesday.

Fed-fund futures, used by investors to bet on central-bank policy, showed investors currently price a more than 70 per cent chance of higher rates by the end of the year, according to CME Group.

Analysts also attributed some of the dollar’s strength to investors’ perception that Donald Trump was falling behind in the US presidential race after House Speaker Paul Ryan cut the cord to the Trump campaign Monday.

“We think a December rate rise is pretty likely now,” said Mike Bell, strategist at J.P. Morgan Asset Management. The only things that could derail that are a significant negative reaction in markets to the US election or a marked deterioration in US economic data, both of which seem increasingly less likely now, he said.

The yield on the 10-year Treasury note rose to 1.76 per cent as the US bond market reopened from a holiday.

Elsewhere, the Stoxx Europe 600 swung between small gains and losses and closed down 0.5 per cent. The technology sector fell, after a steep drop in shares of Samsung Electronics Co. dragged down Korea’s Kospi index.

The electronics company’s stock fell over 8 per cent after it halted distribution of its Galaxy Note 7 smartphone because of issues with batteries overheating and said Tuesday it would permanently discontinue production and sales of its embattled smartphone.

In other currency trade, the British pound fell 2 per cent to $US1.2115, bringing losses this year close to 18 per cent.

“The market is now assuming that the UK is going to go ahead with a hard Brexit, prioritizing control of immigration over access to the single market,” Mr Bell said.

London’s FTSE 100 index touched its highest level in at least 20 years Tuesday as the falling currency lifted the export-heavy index.

The euro was down 0.8 per cent against the dollar at $US1.1053, even after data showed a pickup in German economic sentiment at the start of the fourth quarter.

Earlier, Japan led gains in Asian markets as a weaker yen boosted shares of exporters, helping lift the Nikkei Stock Average up 1 per cent.

Shares in Shanghai added 0.6 per cent, while Hong Kong’s Hang Seng Index fell 1.3 per cent amid a steep fall in property stocks.

Dow Jones