Wall Street drops as trade worries, earnings weigh

By Sruthi Shankar

(Reuters) - U.S. stocks headed lower on Thursday as investors remained wary about the outcome of U.S.-China trade talks, while a slew of disappointing earnings weighed on the indexes.

Industrial stocks Caterpillar and Boeing were among the biggest drags on the Dow Jones Industrial Average, which dipped below its 200-day moving average for the first time since April 2.

AIG dropped 8.5 percent after the insurer reported a lower-than-expected quarterly profit, while Cardinal Health declined 15.6 percent after the drug distributor cut its annual earnings forecast.

Tesla shares fell 5.7 percent, extending losses from Wednesday after Chief Executive Officer Elon Musk cut off analysts asking about the company's profit potential, despite promises that production of the troubled Model 3 electric car was on track.

"We weakened post the FOMC meeting and it's a little bit of the same carrying over to today," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia. "Augmenting it is some worries about trade negotiations with China that are underway and what may come of that."

A U.S. delegation, led by Treasury Secretary Steven Mnuchin, arrived in Beijing on Thursday for talks on tariffs, with state media saying China will stand up to U.S. bullying.

However, a breakthrough was viewed as highly unlikely, especially as the U.S. embassy said the delegation would leave as early as Friday evening.

At 9:53 a.m. ET, the Dow was down 140.08 points, or 0.59 percent, at 23,784.90, the S&P 500 was down 12.79 points, or 0.49 percent, at 2,622.88 and the Nasdaq Composite was down 22.51 points, or 0.32 percent, at 7,078.39.

The S&P 500, at its session low, was 4 points shy of its 200-day moving average.

Wall Street closed lower on Thursday, weighed down by news about potential U.S. restrictions on Chinese telecommunications companies, and after the Federal Reserve reaffirmed outlook for more rate hikes.

The central bank expressed confidence that a recent rise in inflation near to its target would be sustained, leaving it on track to raise borrowing costs in June, but emphasized the inflation target was "symmetric", suggesting it was not inclined to speed up its tightening plans.

Even as first-quarter earnings continued to come in strong, the rewards to profit beats have been subdued as investors worry that earnings may have peaked, especially after bellwethers including Caterpillar flagged concerns about rising costs.

"Though we've come out of great earnings and economic news has been decent enough, for one to think equity prices should move higher, market participants don't seem to believe that they're being given enough good news," Luschini said.

Ten of the 11 major S&P sectors were lower, with the financial index's 0.9 percent drop lead by AIG's fall.

Caterpillar was down 1.9 percent after BofA Merrill Lynch downgraded the stock to "neutral", citing slowing retail sales and peaking Class 8 truck orders.

Kraft Heinz rose 3.2 percent after its quarterly profit beat expectations, benefiting from U.S. tax changes and price hikes to counter higher input costs.

Declining issues outnumbered advancers for a 1.52-to-1 ratio on the NYSE and for a 1.39-to-1 ratio on the Nasdaq.

The S&P index recorded one new 52-week high and 26 new lows, while the Nasdaq recorded 19 new highs and 23 new lows.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Shounak Dasgupta)