You’d be forgiven for thinking Caterpillar has nothing to worry about. On Tuesday, the manufacturing giant reported third-quarter profit per share that was the best in its 93-year history.
But investors are indeed worried. Those earnings may have been fine, analysts say, but they weren’t great. “People were hoping for great,” Jefferies’ Stephen Volkmann told Bloomberg. In the past month, Caterpillar has lost 21% of its market value.
Third-quarter results from 3M were similarly disappointing, and helped send the market tumbling on Tuesday. The Dow Jones Industrial Average at one point fell more than 500 points, though it later recovered. The S&P 500 dropped 1.5%, the Nasdaq Composite fell 1.5%, and the small-caps Russell 2000 dropped 1.4%.
One major culprit: US president Donald Trump’s ongoing trade war with China, and the resulting tariffs on steel, which cost Caterpillar some $40 million in the third quarter. For the full year, Caterpillar expects to take a tariff hit in excess of $100 million. Starting in January, the company will pass that burden onto consumers, increasing prices by 1% to 4% worldwide. Benchmark steel is now 30% more expensive in the US, and pricier than anywhere else in the world.
Caterpillar and 3M aren’t the only ones feeling the impact: Last month, Ford announced that its profits were down around $1 billion, even though most of its metals are sourced domestically. Investors will also be looking at new-economy tech firms like Amazon, Alphabet, and Twitter, all of whom report earnings this week.
As CNBC notes, US/China trade negotiations have ground to a halt, sparking concerns that the tariff fallout will only continue. ”We just look like we’re getting further away from a deal with China,” said B. Riley FBR strategist Art Hogan, chief market strategist. “The ramifications of a prolonged trade war are really seeping into investors’ minds right now.” In short, an already choppy market could be set for even stormier seas.