If any stock is a poster child for the pain that could be caused by trade wars and a slowing China, it's Caterpillar. Robert Sluymer, technical analyst at Fundstrat, points out that it reached its peak of the year early in 2018 and has moved sideways ever since.
"From the beginning of the year we've been looking at 2019 as a weak year. What we've seen is trend breaks on all of our international markets. They all peaked in the summer," Sluymer said. "In the last two weeks, the banks and some of the cyclicals are breaking down. Transports broke the uptrend."
Strategists said even with the rebound, the sell-off may have further to go.
"There's an outsized number of companies that are reporting sales results that are not as good as expected, and they're starting to manage down the outlook a little bit. There are companies that have been talking about margin pressure. Both of those things — concerns sales are weakening and crimping margins — has to scare investors," said Jim Paulsen, chief investment strategist at Leuthold Group. "If those are true then the numbers on 2019 earnings estimates are wrong."
Paulsen said a more concerning story than global growth hitting earnings would be if U.S. growth were to slow.
"If you have to start bringing them down, everyone that thinks the market is reasonably priced based on 2019 earnings is going to have to alter those earnings. If they suddenly see the valuation case going away, that certainly is concerning," he said.
Stovall said, "The market will be in need of a new catalyst to push share prices higher. That catalyst could come in some form of trade agreement with China, or even something like Republicans not losing control of the House [of Representatives]."
As of now, talks with China have stalled, but both the U.S. and China are ready to continue piling on tariffs. President Donald Trump is expected to meet with China President Xi Jinping in November.
But the earnings news is a warning. "I think it says the market is vulnerable to a resetting of growth potential and certainly is not likely to experience multiple expansion. I think it's now under pressure and it has to find a base. It has to then retest that base successfully, before we move higher," Stovall said.