- Weak Chinese manufacturing data spurs declines globally
- IMF's Lagarde says global growth outlook worse than in July
U.S. stocks joined a worldwide selloff, after equities’ worst month in more than three years, amid continuing concerns that China’s slowdown will weigh on the global economy.
Energy shares fell for the first time in five sessions as oil retreated after the commodity’s strongest three-day rally since 1990. Exxon Mobil Corp. and ConocoPhillips slumped more than 2.8 percent. Banks were among the hardest hit, with Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. losing at least 4.1 percent. Apple Inc. and Microsoft Corp. sank more than 3.9 percent to drag down technology shares. Copper producer Freeport-McMoRan Inc. dropped 8.2 percent.
The Standard & Poor’s 500 Index slid 3 percent to 1,913.85 at 4 p.m. in New York, the third-worst drop this year. It’s a sour start to September, historically the worst month of the year with the equity gauge falling 1.1 percent on average going back to 1927, according to data compiled by Bloomberg. The Dow Jones Industrial Average sank 469.68 points, or 2.8 percent, to 16,058.35. The Nasdaq Composite Index lost 2.9 percent.
“The problem is, as much as China is the catalyst for this, it’s also that we’re seeing weakness in fundamentals here,” said Matt Maley, an equity strategist at Miller Tabak & Co LLC in New York. “A lot of company earnings were hurt by China in the second quarter and it’s only gotten worse. People are losing confidence with the whole situation there breaking down, not just in the stock market but in data as well.”
Equities dropped in Asia, with the Shanghai Composite Index slumping as much as 4.8 percent, after manufacturing reports pointed to a deepening Chinese economic slowdown.
International Monetary Fund Managing Director Christine Lagarde said Tuesday the global expansion outlook is worse than the lender anticipated less than two months ago. “This reflects two forces: a weaker than expected recovery in advanced economies, and a further slowdown in emerging economies, especially in Latin America,” Lagarde said in a speech in Jakarta.
A report today showed U.S. factories expanded in August at the slowest pace since May 2013 as anemic demand from emerging markets such as China translated into leaner factory order books. A measure of exports matched the weakest reading since April 2009. The weak manufacturing data surface ahead of the Federal Reserve’s September policy meeting in which they will debate whether the economy is strong enough to withstand an increase in interest rates in the face of fragile overseas economies.
Remarks by Fed Vice Chairman Stanley Fischer last week suggested the central bank hasn’t ruled out raising rates when policy makers gather on Sept. 16-17. That has heightened concerns that the Fed may increase rates even as growth slows around the world. Fed Bank of Boston President Eric Rosengren said in a speech today that uncertainty over inflation and global growth justify a modest pace of rate increases, regardless of when the central bank begins tightening.
Traders are now pricing in a 30 percent chance that the Fed will act this month, down from 38 percent yesterday. Attention will focus this week on the government’s August jobs report, due Friday, as the last major data point before the Fed’s meeting.
“Markets may have overemphasized China’s impact, but markets are also in relatively bad shape and we’re getting more negative technical signals,” said Otto Waser, chief investment officer at R&A Research & Asset Management AG in Zurich. “It’s a close call for the Fed and as long as markets are in turbulence, I don’t think it will raise rates. If the markets remain too turbulent, they will postpone to October.”
The S&P 500 ended down 6.3 percent in August as China’s currency devaluation spurred concern over global growth, erasing more than $5.7 trillion in equity market values worldwide, while a measure of volatility surged the most on record. The S&P 500 plunged the most since 2011 and entered a correction last week, only to then rally more than 6 percent over two days. The U.S. benchmark index closed Tuesday 10 percent below its all-time high set in May.
The Chicago Board Options Exchange Volatility Index rose 10 percent Tuesday to 31.40. The measure of market turbulence known as the VIX had a record monthly jump in August, up 135 percent. About 9 billion shares traded hands on U.S. exchanges today, 28 percent above the three-month average.
A handful of stocks that had driven much of the S&P 500’s 2015 gains before the August selloff came under pressure Tuesday. Facebook Inc., Amazon.com Inc., Apple, Netflix Inc. and Google Inc. -- which had come to be known as the Fab Five -- were all down at least 2.4 percent. Among other technology shares, semiconductor makers Avago Technologies Ltd. and Skyworks Solutions Inc. fell more than 4.9 percent.
All 10 of the S&P 500’s main groups declined today, with energy, financial, technology and raw-material companies all falling more than 3 percent. Energy and financials led the benchmark’s 3.9 percent selloff on Aug. 24, which was its biggest drop in four years.
Energy shares halted a four-day, 12 percent rally after crude fell the most in two months. Chevron Corp. lost 3.5 percent, while Murphy Oil Corp., Consol Energy Inc. and Devon Energy Inc. retreated more than 5.4 percent.
Citigroup and Wells Fargo & Co. fell more than 4.3 percent to pace declines among financial companies, where all 88 stocks in the group retreated. E*Trade Financial Corp. and Lincoln National Corp. decreased at least 4.9 percent. The KBW Bank Index sank 4.3 percent, its second-biggest drop this year, with 22 of the gauge’s 24 members down at least 3 percent.
Dollar Tree Inc. slid 8.7 percent, the most in the S&P 500 and its biggest drop since February 2009. The discount retailer forecast sales that trailed analysts’ estimates, as it works to integrate its acquisition of Family Dollar Stores Inc.
Netflix lost 8 percent for its biggest drop this year. Along with Dollar Tree, the online video-streaming service led the benchmark’s consumer discretionary group lower. Netflix shares are still up 117 percent this year. Wynn Resorts Ltd. and Whirlpool Corp. decreased more than 4.7 percent Tuesday.