Stocks plunge as Dow tumbles about 400; S&P falls to 2,000
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Chinese, European and American stock markets dropped at the opening of the year. USA TODAY
So much for a fresh start on Wall Street.
The first trading day of 2016 is off to a rocky start as some of the same worries that hurt stocks last year — slowing growth and wildly volatile markets in China and geopolitical angst in the Middle East — have reappeared at the start of the new year, prompting a global stock sell-off.
The Dow Jones industrial average, which declined 2.2% in 2015, is down about 390 points, or 2.2%, to 17.044, after earlier falling back below 17,000 for the first time since Oct. 14. The Standard & Poor’s 500 stock index tumbled 2.1% as it fell back down to the 2,000 mark. The S&P is on track for its third worst opening day ever, right behind a 3.7% plunge on the first day in 1932 and a 2.8% loss in 2001.
The tech-heavy Nasdaq composite plunged about 130 points, or 2.6%. The yield on the 10-year Treasury note dropped to 2.22% from 2.27% Friday.
"It’s looking to be an ugly start to the new year," said Josh Selway, analyst at Schaeffer's Investment Research. "Wall Street is taking a cue from global stocks, which are getting crushed amid a brutal day for China’s Shanghai composite, which plunged almost 7%."
Like last year’s big scares, China is again the epicenter of investor angst to start 2016.
A weaker-than-expected reading on Chinese manufacturing that showed contraction for a fifth straight month in the world’s second-biggest economy raised fresh fears about the global growth outlook for 2016. It also sparked a massive stock market sell-off in mainland China, where shares tumbled more than 7%, forcing authorities to halt trading for the day before the normal closing time.
It was the worst start to the year for China stocks ever, according to Bloomberg, and the Shanghai composite’s worst one-day drop since a 7.6% decline on Aug. 25, 2015.
The steep drop of mainland China's shares "brings back dark memories of collapses experienced last summer" amid similar tumult in China, added Paul Hickey of Bespoke Investment Group.
Under a new market “circuit breaker” rule in China established last year, which is designed to slow down markets and halt panic in the event of moves of 5% or more, the CSI 300, a large-company stock index in mainland China was halted for 15 minutes in mid-afternoon trading after diving more than 5%. But when shares headed lower once again just minutes after the initial trading halt, and losses for the day swelled to more than 7%, the new circuit breaker rules kicked in, prompting a shutdown of mainland China’s stock market for the day, according to Bloomberg.
Fresh data on U.S. manufacturing added to investor fears about a global economic slowdown. An index of U.S. factory activity fell to 48.2 from 48.6, the Institute for Supply Management said Monday. That’s the lowest level since June 2009 and the second straight month of reading below 50, signaling contraction in the sector.
Adding to the worries in the world’s financial markets is rising tensions between Saudi Arabia and Iran. Saudi Arabia announced Sunday that it was severing ties with Iran, hours after Iranian protesters set fires in the Saudi Embassy compound in Tehran. Tensions between the Middle East powers have intensified since the Saudis announced the execution Saturday of Sheik Nimr al-Nimr, a beloved cleric among Shiite Muslims known as a voice for free Saudi elections during the Arab Spring protests.
Stocks around the globe got clobbered. In Asia, Mainland China’s Shanghai composite closed down 6.9%. And Hong Kong’s Hang Seng index fell 2.7%. Japan’s Nikkei 225 lost 3.1%.
And the selling that began in Asia spread quickly and painfully to Europe. Shares of Germany’s DAX index, which is filled with stocks that export goods to China, was down 4.3%. The CAC 40 in Paris was off 2.5% and the broad Stoxx Europe 600 was 2.4% lower.
China, which was among the big market drags in 2015, was also on Wall Street’s list of potential risks again in 2016. Like last year, any signs of a more pronounced economic slowdown in China is a risk to global stocks, including U.S. shares, Wall Street pundits noted in their 2016 forecasts.
Today’s major sell-off in mainland China stocks is reminiscent to the summer swoon last year in China that engulfed shares on Wall Street, sending U.S. shares back in August to their first 10%-plus dive in nearly four years. After a massive run-up early in 2015, the Shanghai composite stock index made waves with attention-getting, crash-like selloffs, including a nearly 6% one-day drop in early July and an even bigger 8.5% plunge in late July, its worst since 2007. The big scare last year, however, came on Aug. 8, when Beijing officials surprised global markets when it devalued its currency, the yuan, in an attempt to stimulate its ailing economy. The move exacerbated fears of a more serious slowdown.
Tensions in the Middle East lifted prices of U.S.-produced crude up 37 cents, or 1%, to $ 37.41 per barrel. U.S. crude fell 30% in 2015.
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Contributing: John Bacon, Paul Davidson
U.S. stocks are starting the new year with lots of volatility. Stocks in China fell so sharply that trading was halted. The sell-off came after disappointing manufacturing numbers in China. Newslook
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