Dow drops 200 points on bleak earnings, China forecast

U.S. stocks took a 200-point plunge today as earnings and forecasts from several companies disappointed investors.

The Dow Jones industrial average was down 210 points or 1.3 per cent to 16,160 in late afternoon, amid disappointing results from MacDonalds, KeyCorp and Johnson Controls.

Investors also worried about a slowdown in China, a major driver of global growth, after a survey suggested the country's factory sector was contracting.

The Standard & Poor's 500 index fell 20 points to 1,874. Toronto stocks followed the U.S. market down, but the slide was not as steep, down 46 points or 0.3 per cent at 13,941. 

At the same time, yields on U.S. Treasury bills gained, indicating declining confidence in the U.S. economy.

After rising 26 per cent in 2013, many traders believe the Dow Jones index is due for a correction. Since earnings season began last week, there have been disappointments from Intel, Best Buy and IBM. U.S. holiday retail sales were dampened by deep discounts in prices, which may mean more poor outlooks in the retail sector. 

Asian markets ended broadly lower after a preliminary reading of HSBC's purchasing managers' index for China fell to the lowest level since July.  New orders, exports, employment and backlogs all showed declines. 

At the same time, the Federal Reserve pulled back on its bond-buying program to $75 billion a month in January and could announce a decision to taper further as soon as next week.