A small bit of bad economic news from China sparked a big global reaction as U.S. stocks followed the rest of the world’s markets down sharply Tuesday, a sign of investors’ deepening concerns about the strength of the Chinese economy.
The blue-chip Dow Jones industrial average dropped nearly 3%, falling 469.68 points, to 16,058.35, while the broad-based Standard & Poor’s 500 index fell 58.33, also about 3%, to 1,913.85.
The latest sell-off comes after stocks rebounded last week with the biggest two-day rally in seven years and continues the wild volatility that has marked trading sessions for more than two weeks. Despite the two-day gain, Dow has lost nearly 2,500 points over nine other days.
The trading also opens a month that is historically a bad one for stocks. September is the only month of the year in which the Standard & Poor’s 500 index has fallen more often than it has risen in the post-World War II era, according to Sam Stovall, U.S. equity strategist for S&P Capital IQ.
It’s also the month that has produced the worst average return, a negative 0.63%, compared with a positive 0.66% for the average month from the end of 1945 through Friday.
The immediate cause of Tuesday’s sell-off was likely the release of new data showing weaker-than-expected manufacturing in China, prompting fears of a so-called hard landing as the country’s economy decelerates, said David Schegoleit, managing director of investments for U.S. Bank’s wealth management unit.
Investors also have watched with concern the Chinese government’s fitful attempts to control both its markets and its broader economy.
"The Chinese government has been trying to walk a tightrope," Schegoleit said. "It’s wanted to be respected as a world player and economic power, while not wanting to accept the downsides that come with it."
He noted that major factors fueling investor fears are a lack of confidence in China’s official economic figures and a lack of transparency in its economy and markets generally.
"This is what happens when lack of visibility runs up against fear and stress in the markets," Schegoleit said.
But analysts said that, at this point, the sell-off may be an overreaction, particularly given the relative strength of the U.S. recovery.