Kevin Hassett did not exactly inspire confidence in U.S. investors Thursday when he told reporters there would likely be a “heck of a lot” more companies issuing earnings warnings due to China’s slowing economy.
The comments from Hasset, the chair of the White House’s Council of Economic Advisers, made is comments midday Thursday. Shortly afterward, the already limping stock market took a sharp turn downward.
The Dow Jones Industrial Average fell 660 points, around 2.8 percent. The Nasdaq Composite declined 3.04 percent. The S&P 500 closed down 2.4 percent. The Russell 2000 index of smaller, domestically focused companies fared best, falling by 1.71 percent.
Shares of Apple were down sharply following the announcement by the company that its sales would fall below earlier forecasts. The company said poor sales in China were responsible for the demand, which it said was due to a combination of domestic economic troubles and pressure from the trade dispute with the U.S. Shares of Apple fell 10 percent.
Nine of the 11 sectors in the S&P 500 declined. The technology sector declined by 4.7 percent. Utilities and real estate, two areas of the market often considered “safe havens” by investors, rose.
The major indexes opened lower in the morning. They saw a briefly lived bounce when data on private payrolls came in better than expected. But survey data indicating a slowdown in manufacturing growth in the U.S. sapped most of the optimism.
Hassett pointed out that China’s economic woes showed that pressure from the U.S. was taking a toll. But he noted that this would likely mean that many large, U.S. global firms with exposure to China would likely blame the trade dispute for poor sales. This seemed to confirm fears that there could be a blowback effect of tariffs on corporate profits.
The combination of stronger than expected jobs data and weaker than expected manufacturing data opened up the possibility that the Fed could damage the economy by raising rates too far. The idea is that the Fed could focus on the tightness in the labor market while overlooking other signs of potential weakness.