Trader Thomas Donato works on the floor of the New York Stock Exchange Tuesday, Oct. 23, 2012. Stocks fell sharply on Wall Street after 3M and DuPont slashed their earnings forecasts.Richard Drew
Disappointing corporate earnings are providing stark new evidence of a worsening global economic outlook, driving stocks and commodity prices lower despite the efforts of central banks to stimulate recovery.
A spate of blue-chip companies warned of a slowdown and sagging demand, some after previously reporting several consecutive quarters of growth.
On Tuesday, disappointing results or outlooks from industrial heavyweights DuPont, 3M, United Technologies and Xerox joined the list of companies signalling an increasingly tough business environment.
And Dow Chemical Co. said it plans to cut 5 per cent of its global work force, 2,400 people, and shut 20 plants in an effort to slash costs as the global economy slows.
"The reality is we are operating in a slow-growth environment in the near term," said chief executive officer Andrew Liveris.
The suddenly darker outlook knocked stock prices sharply lower and weighed on commodity prices amid worries about an unwinding of the global commodities supercycle.
From barrels of oil that hit three-month lows to bars of gold that dropped to their lowest level in six weeks, commodity prices are falling across the spectrum.
Copper prices hit six-week lows.
Stocks tumbled sharply, sending the Toronto Stock Exchange benchmark down 1.4 per cent and the Dow Jones industrial average down 1.8 per cent.
"There's a renewed bout of nervousness about the outlook for global growth and the outlook for the euro zone," said Patricia Mohr, a commodity economist in Toronto for the Bank of Nova Scotia. "We appear to be in a period of very lacklustre, global economic growth and it's impacting on both the equity and the commodity markets."
Companies that previously rode the coattails of the commodities boom are now seeing demand fall off. "As we've moved through the year, we've seen continued economic weakening and uncertainty," Doug Oberhelman, the chairman and chief executive officer of Caterpillar Inc. said in the company's earnings statement on Monday.
"It's definitely impacting our business, with dealers intending to lower inventories and mining customers delaying some projects and reducing orders," Mr. Oberhelman said.
Caterpillar said weaker-than-expected global economic conditions required temporary shutdowns and layoffs that will remain in place as long as dealers hold order rates below end-user demand to reduce inventories.
Major mining projects are being held up around the world as companies ease up on spending as they nervously gauge demand in China – the world's largest consumer of commodities ranging from copper to cotton.
China for years underpinned relentless demand for a slew of commodities, but that's now changing as the country's growth continues to cool.
On Tuesday, chemical maker E.I. du Pont de Nemours & Co. and 3M Co., which makes an array of consumer and business products, spoke of weakening demand a month after central banks from China to the United States, Japan and Europe implemented measures to spur their economies. DuPont, a 200-year-old U.S. company that started life as a gunpowder maker, said it is cutting 1,500 jobs amid declining demand for its products.
DuPont, which reported third-quarter profit far below the average estimates of a Bloomberg poll of analysts, said results were hurt by weaker-than-expected demand for its white pigment titanium dioxide, a major revenue driver, and for photovoltaic materials.
Barely a month ago, commodity prices were rebounding on optimism that economic stimulus measures in the United States, China, Japan and Europe would reignite flagged demand.
Sentiment has slowly sagged since then, and was punctured this week by a decision by Moody's Investors Service to cut credit ratings on five Spanish regions just days after keeping the country's sovereign rating at the lowest investment grade in its repertoire.