January 22, 2019

Dow falls 300 points on weak economic outlook

Stocks fell Tuesday after a series of economic reports confirmed what investors have feared: The global economy's long rebound could be nearing its end.

Existing home sales in the United States had their worst month in more than three years. China's economy grew at its lowest pace in almost three decades. And the International Monetary Fund warned that trade spats threaten to make slowing global economic growth even slower.

The Dow fell 300 points. The S&P 500 fell 1.2% and the Nasdaq was 1.4% lower. US crude oil, which had rebounded in recent weeks, tumbled 3.1% Tuesday.

Closed on Monday for Martin Luther King Jr. Day, markets got their first chance Tuesday to react to China's 2018 GDP report and the IMF's global economic outlook presented at the World Economic Forum in Davos, Switzerland. Both reports were released Monday.

The IMF lowered growth estimates for its 2019 World Economic Outlook by 0.2 percentage points to 3.5%, its second downward revision. It cited weakening economies in Germany and Turkey for the downgrade. The German economy had its worst year since 2013, though it may have dodged a recession.

But the report made clear that a no-deal Brexit and the unresolved trade war between the United States and China remain the biggest known risks to growth.

Also Monday, China reported that its economy grew 6.6% in 2018. That's the weakest annual performance since 1990.

Chinese growth has lost momentum following government efforts to try to rein in high levels of debt. It has also started feeling the effects of the trade war with the United States, which has resulted in new tariffs on more than $250 billion of Chinese exports.

And Tuesday, the National Association of Realtors reported sales of existing US homes fell by 6.4% last month. That marks the weakest performance since November 2015. Home sales had edged lower throughout most of 2018 --- but nothing close to the drama of December's decline. Existing home sales fell 10.3% for the year.

The Federal Reserve has been closely watching the housing market for signs of deterioration as it weighs its next move. It could continue raising rates to fight inflation or slow its rate-hike campaign to avoid stalling an economic growth period apparently on its last legs.

As earnings season gets underway, investors will look to corporate sales and profit growth for signs of a slowing economy.

Dow components Johnson & Johnson (JNJ) and Travelers (TRV) both reported earnings Tuesday that beat Wall Street's expectations, but their shares both fell Tuesday, dragged down by the broader market.

Stanley Black and Decker (SWK) said its 2019 earnings would miss analyst's forecasts, citing "multiple external headwinds." Shares tumbled 13%.

But eBay (EBAY) shares rose 7% after after activist hedge fund Elliott Management said it took a stake in the company --- and wants to break it up by spinning off ticket reseller StubHub.

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