Nvidia profit warning rattles investors

U.S. stocks closed lower Monday in the wake of disappointing earnings from bellwether Caterpillar Inc., as investors turned cautious at the start of a busy week packed with earnings, economic data, a Federal Reserve meeting and a new round of U.S-China trade talks.

How did benchmark indexes fare?
The Dow Jones Industrial Average DJIA, -0.84% shed 208.98 points, or 0.8%, to end at 24,528.22, while the S&P 500 index SPX, -0.78% fell 20.91 points, or 0.8%, to 2,643.85, and the Nasdaq Composite COMP, -1.11% dropped 79.18 points, or 1.1%, to finish at 7,085.68.

At session lows, the S&P 500 was off more than 40 points, the Dow fell over 400 points and the Nasdaq had lost 130 points.

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What drove the market?
Wariness seeped in the market ahead of the Fed meeting and a huge week for earnings with 126 S&P 500 companies slated to report quarterly results.

The central bank will convene a two-day meeting on Tuesday, with no change in key interest rates expected. Attention is instead likely to focus on a news conference afterward with Fed Chairman Jerome Powell for any clues on future policy.

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Earnings have swung into focus in a big way, starting with Caterpillar CAT, -9.13% whose shares skidded 9.1% after the company missed fourth-quarter earnings estimates.

Investors will also hear this week from big names such as Facebook Inc. FB, -1.03% Amazon.com Inc. AMZN, -1.96% and Apple Inc. AAPL, -0.93%

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Trade will also be in the spotlight with talks aimed at resolving the impasse over Chinese technology ambitions and other issues expected to restart in Washington later in the week, headed up by U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He.

U.S. President Donald Trump and Democratic congressional leaders agreed on Friday to reopen the government until Feb. 15, for now ending a 35-day partial shutdown. Lawmakers will debate funding for an extension of the southern border wall.

But fears of another shutdown remain after Trump, in an interview with The Wall Street Journal, said he placed a 50-50 chance of a deal over border-wall funding being reached by a newly created board of 17 before the next government-funding deadline.

The Federal Reserve of Chicago’s national activity index rose to 0.27 in December, up from 0.21 in November.

Growth in Texas manufacturing activity accelerating in January, according to the Federal Reserve Bank of Dallas. It’s monthly manufacturing index rose from 7.3 to 14.5.

What stocks were in focus?
Shares of Nvidia Corp. NVDA, -13.82% sank 14% after the chip maker said it expects to report $2.2 billion in fiscal fourth-quarter revenue, below its previous outlook of $2.7 billion.

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Shares of rival Advanced Micro Devices Inc. AMD, -7.98% also slumped 8%. AMD is scheduled to announced its quarterly results later this week.

Shares of Guess Inc. GES, -14.57% tumbled 15% after the firm announced the departure of its Chief Executive Victor Herrero. He will be replaced by Carlo Alberini, currently the chairman and CEO of Lucky Brand.

What were strategists saying?
“The Nvdia profit warning is [hurting market sentiment] more than the Caterpillar earnings miss,” Larry Benedict, chief executive of the Opportunistic Trader told MarketWatch. “Slowing demand in China hit them hard,” he said, causing investors to worry that Chinese “demand has slowed more than people imagine.”

U.S. stocks are “starting this week under some pressure as Trump throws cold water on the chances of a shutdown deal, and after Chinese industrial production comes in light,” wrote Dave Lutz, head of ETFs at JonesTrading, in a note. Lutz highlighted elevated uncertainty with U.S.-China trade talks, the FOMC decision, the jobs report, and “angst” over the Brexit vote.

How were other markets trading?
Stocks in Asia finished mixed, with the Nikkei 225 index NIK, +0.08% closing down 0.6% and Hong Kong’s Hang Seng Index HSI, -0.16% ending flat. European stocks were lower, with the Stoxx Europe SXXP, +1.04% slipping 1%.

Crude oil prices CLH9, +0.90% retreated, while gold futures GCG9, +0.35% settled higher, and the ICE U.S. Dollar Index DXY, +0.04% a measure of the U.S. currency against a basket of six major rivals, was mostly flat.

The British pound GBPUSD, +0.2128% fell ahead of a series of Brexit-related votes in the U.K. parliament that could delay or even cancel the country’s exit from the European Union.

—Barbara Kollmeyer contributed to this report