Dow drops more than 200 points as Trump won't meet Xi before US-China trade deadline

Stocks fell sharply on Thursday as it became clear that a trade meeting between President Donald Trump and Chinese President Xi Jinping would not happen before a key March deadline.

The Dow Jones Industrial Average dropped 220.77 points to 25,169.53 as Apple and DowDuPont led the decline. The S&P 500 pulled back 0.94 percent to close at 2,706.05, led lower by the energy and tech sectors. The Nasdaq Composite lagged, sliding about 1.2 percent to 7,288.35.

CNBC learned through a source that a meeting between the two leaders was "highly unlikely." China and the U.S. have until the start of March to strike a trade deal. Otherwise, additional tariffs on Chinese goods take effect. The source said a meeting between Xi and Trump could happen shortly after the deadline passes, but noted both sides have too much work ahead of them. Trump later confirmed he would not be meeting Xi before the deadline.

Earlier on Thursday, White House economic advisor Larry Kudlow said China and the U.S. were still far away on striking a trade deal. "We've got a pretty sizable distance to go here," Kudlow told Fox Business, referring to the ongoing trade talks between the two largest world economies. Kudlow added Trump is "optimistic with respect to a potential trade deal."

"The keystone in the wall of worry is the trade discord," said Sam Stovall, chief investment strategist at CFRA Research. "Should the negotiations crumble so too will near term support for equity prices."

Shares of Caterpillar and Deere both fell more than 1 percent. Boeing dropped 0.9 percent. These companies' stocks are seen as bellwethers for global trade given their exposure to overseas markets.

The market was already on edge as worries about the global economy were rekindled. The European Commission slashed its growth outlook for the euro zone this year as it expects the bloc's largest economies to be held back by global trade tensions, among other issues. The Commission said euro zone growth will slow to 1.3 percent this year from 1.9 percent in 2018, before rebounding in 2020 to 1.6 percent.

That growth outlook sparked worries that the global economy could be slowing down, in part because of trade tensions. Similar fears contributed to the market's sharp downturn in December. That decline briefly sent the S&P 500 into bear-market territory on an intraday basis.

The Bank of England also cut its 2019 outlook and sees the UK economy growing at its slowest pace since 2009.

Thursday's decline comes as the corporate earnings season continues. Twitter reported quarterly earnings that beat analyst expectations on Thursday. However, shares of the social media company fell 9.8 percent as Twitter also issued light guidance. Fiat Chrysler and Cardinal Health are also among the companies that reported better-than-expected earnings.

Poor earnings outlook?

Companies are reporting solid earnings growth for the fourth quarter with profits showing an increase of 14.1 percent on a year-over-year basis, according to FactSet. However, the outlooks accompanying those earnings reports are not as rosy. Because of those poor forecasts, earnings for the first quarter of 2019 are expected to drop more than 1 percent, according to FactSet. That's the first year-over-year decline in earnings in more than two years.

"The market is pricing in a down Q1 but they're pricing in a positive Q2 and Q3," said Andrew Slimmon, managing director at Morgan Stanley Investment Management. "The risk is that Q2 slips to zero and now you're talking about two consecutive quarter of negative earnings growth, which is technically an earnings recession."

"The reason why the market has not focused on this yet is there was such an overwhelmingly high level of bearishness at the beginning of the year," Slimmon said.

The S&P 500 snapped a five-day winning streak on Wednesday following the release of mixed quarterly results. Equities are still up sharply for the year, however, following the market's best January performance in three decades.

"The market had an unbelievable run," said Larry Benedict, founder of The Opportunistic Trader. "You have to respect the move. It's been real and across all sectors. But it's due for a little bit of a pullback."

Shares of BB&T and SunTrust Banks bucked the overall negative trend, gaining 4 percent and 10.2 percent, respectively. The two stocks rose after BB&T agreed to buy SunTrust for more than 28 billion. The deal — the biggest in a decade within the banking sector — creates a $66 billion company and the sixth-largest U.S. bank by assets. The SPDR S&P Regional Banking ETF (KRE) rose 1.5 percent.

WATCH: Trade deal or no deal, the U.S. and China are fighting for global power

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Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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