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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 2 hours later)
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. A world-wide stock sell off arrived on Wall Street Monday, serving notice that investors are likely to endure a volatile year as economic growth slows globally and interest rates at home begin to rise.
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. The Dow Jones industrial average, a closely watched benchmark of 30 blue-chip stocks, tumbled by nearly 400 points Monday, before bouncing back some to close down 1.6 percent.  The Standard & Poor’s 500, a broader look at the market, and tech-heavy Nasdaq were down 1.5 percent and 2.1 percent respectively.
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. China helped trigger the morning sell-off after reporting yet another slowdown in its manufacturing sector on Monday, but investors are also growing concerned that rising tension between Saudi Arabia and Iran could lead to higher oil prices and that the U.S. economy may not be strong enough to withstand such global upheaval.
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.
“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.”
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.“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. The sell-off quickly spread throughout Asia, Europe and then landed in U.S. markets with a thud.
“‘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. U.S. investors faced the worst start to a trading year in at least a decade. China’s CSI 300 index, a benchmark of the largest 300 stocks listed in Shanghai and Shenzhen, tumbled nearly 7 percent, while Japan’s Nikkei and the Euro Stoxx were both down more than 3 percent.
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. For mom-and-pop investors, the turmoil was an inauspicious start to a year that many market watchers are predicting will be rocky. Investors endured a lackluster 2015 with the major U.S. indexes closing the year either down or flat. And now, analysts said, 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.
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. “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.”
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. This comes just as the Federal Reserve has begun to remove its support of the U.S. economy, allowing interest rates to rise for the first time in years. The Fed’s actions were a bet that the U.S. economy was ready to stand on its own, but that could be called into question soon, analysts said. Last week, RBC Capital Markets lowered its expectations for the Standard & Poors index this year. On Monday, new data showed that the manufacturing sector in the U.S. contracted at the fastest pace in six year in December.
“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. “You have to get worried about the adequacy of economic activity going forward,” said John Lonski, chief capital markets economist for Moody’s Analytics. “Is the economy going to be lively enough?”
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.” A stumble Monday on Wall Street doesn’t 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 this summer policy makers there surprised many by allowing a devaluation of the country’s currency. On Monday, China reported that its manufacturing sector contracted again.
The disappointing report cast renewed doubt on the effectiveness of Beijing’s policies to boost the country’s economy. Exacerbating investors’ anxiety in China was the implementation of “circuit breakers” that briefly prevented investors from selling their stock.
Middle East tensions is also rattling some investors. Saudi Arabia, the world’s largest oil exporter, cut diplomatic ties with Iran on Sunday. On Monday, Saudi allies, Bahrain and Sudan, 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, which have lumbered near record lows for more than a year, rose nearly 3 percent Monday before closing flat 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.
Investors are also watching to see how quickly the Federal Reserve moves to raise short-term interest rates again, after the initial increase in December. Signs that the slowdown in China may be worse than expected could indicate that the Fed moved too quickly to begin raising rates, economists say. “The world economy matters to the United States,” said Lonski of Moody’s Analytics. “It matters more today than it perhaps did in the past.”
If faced with disappointing economic reports in the U.S., combined with bouts of market volatility could prompt the Fed to put off future rate hikes, some analysts have said.
“Failure of the Fed to successfully move the Funds rate higher would negatively impact market sentiment and stock valuations,” RBC, the Canadian investment bank, said in a research note.
Despite the erractic 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 [don’t] get freaked out ,” Orlando said. “This too will pass.”