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U.S. stocks slide following steep market drop in China U.S. stocks slide following steep market drop in China
(about 1 hour later)
The Dow Jones industrial average plunged in early trading on Monday, falling more than 2 percent after a tumultuous day for Chinese markets. Global markets fell off a cliff Monday amid renewed concerns of an economic slowdown in China, signaling that 2016 could be another volatile year for investors.
At one point in the morning, the Dow was down more than 400 points, before recovering a bit. In the late morning, the Standard and Poor’s 500 index, a broad measure of stocks, dropped 2 percent and tech-heavy Nasdaq was down 2.5 percent. The fear started in China after the country reported yet another slowdown in its manufacturing sector.  The country’s CSI 300 index, a benchmark of the largest 300 stocks listed in Shanghai and Shenzhen, tumbled more than 6 percent.
Disappointing manufacturing reports in China sent stocks there sliding more than 7 percent. The drop triggered a circuit breaker that halted trading. The sell-off quickly spread to the rest of Asia, Europe and then landed in U.S. markets with a thud. Japan’s Nikkei and the Euro Stoxx were both down more than 3 percent, while U.S. stocks tumbled more than 2 percent.
A tumble in global markets soon followed. Japan’s Nikkei index fell more than 3 percent; stocks in Europe also plunged with the main German index, the DAX, down by 4 percent. The Dow Jones industrial average, a closely watched benchmark of 30 blue-chip stocks, tumbled more than 400 points Monday morning. The Standard & Poor’s 500, a broader look at the market, and tech-heavy Nasdaq were down 2 percent and 3 percent respectively. So far, this is the worst opening day for U.S. stocks in at least a decade.
Turbulence in the Middle East also factored into the sell-off. Saudi Arabia cut diplomatic ties with Iran on Sunday; Bahrain and Sudan on Monday also severed ties with Iran, in what analysts have described as one of the worst crises in decades between the region’s Sunni and Shiite powers. Oil prices rose nearly 3 percent as a result. And investors poured into gold, a safe haven, sending the metal up 1.6 percent. “It is a bucket of cold water as we come into the new year,” said Jack Ablin, chief investment officer for BMO Private Bank.  The fate of the trading year “depends on the global economy, and so starting off on the wrong foot here is obviously disappointing.”
The turmoil was an inauspicious start to the year that many have predicted would be rocky for investors. China’s slowdown, rising interest rates in the United States and growing tensions in the Middle East are expected to lead to high volatility on global markets. For mom-and-pop investors, the turmoil was an inauspicious start to a year that many market watchers have predicted would be rocky. Investors already endured a lackluster 2015 with the major U.S. indexes closing the year either down or flat. And now as China’s economy continues to slow, they are likely to see a return of the stomach-churning volatility that sparked deep sell-offs last summer, analysts said.
“Fear woke up this morning, and hope is sleeping in,” said David Kelly, chief global strategist for J.P. Morgan Funds.
A stumble Monday doesn’t necessarily spell doom for 2016, but if the volatility continues throughout the rest of the month, investors are likely to find themselves disappointed, analysts said.
“’As January goes, so goes the year’ is an old Wall Street saying, which has been correct 72.4% of the time,” Howard Silverblatt, senior index analyst for S&P Dow Jones Indices, said in a research note this morning.
The global selling frenzy underscores investors’ fears about China’s slowing economy. The world’s second-largest economy has cooled off, and the disappointing report on its manufacturing sector Monday cast renewed doubt on the effectiveness of Beijing’s policies to boost the region’s economy.
Adding to the investors’ jitters is turbulence in the Middle East. Saudi Arabia cut diplomatic ties with Iran on Sunday; Bahrain and Sudan on Monday also severed ties with Iran, in what analysts have described as one of the worst crises in decades between the region’s Sunni and Shiite powers.
Oil prices rose nearly 3 percent on concerns that the conflict could disrupt oil supplies. Some of those concerns may be overblown, said Kelly of J.P. Morgan Funds. Still, the market reaction is a reminder that investors will be watching oil prices closely this year.
“It just reminds us that while economic conditions here at home appear to be stable and improving incrementally, we’re still part of a global economic system that is tied very closely together,” said Ablin from BMO Private Bank.
Despite the tough start to the trading year, investors should remain optimistic, said Phil Orlando, chief equity market strategist for Federated Investors. “Folks need to take a deep breath and relax a little bit and not get freaked out because we have this problem in China,” Orlando said. “This too will pass.”