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U.S. Stocks Tumble After Selloff in China Renews Growth Concern

Monday, 04 Jan 2016 04:29 PM

(Bloomberg) -- U.S. stocks tumbled to start 2016, as a rout in Chinese equities renewed concern that an economic slowdown there will damp global growth.

Investors returning to the market after the New Year holiday faced a worldwide selloff sparked by weak factory data in China, while a reading that showed the fastest contraction in U.S. manufacturing in six years bolstered anxiety that slowing growth in the world’s second-largest economy is spreading. A flareup in tension between Saudi Arabia and Iran added to the unease.

The Standard & Poor’s 500 Indexfell 1.5 percent to 2,012.98 at 4 p.m. in New York, after sliding as much as 2.7 percent, for its worst start to a year since 2001.

“We’ve had a number of negatives out there in the U.S., and China is a reminder that there aren’t many things to be bullish about going into this year,” said Michael O’Rourke, chief market strategist at JonesTrading Institutional Services LLC in Greenwich, Connecticut. “The three catalysts to the bull market were economic recovery, earnings recovery and accommodative policy, and while the economy has gotten better, we’ve lost the other two.”

Trading was halted in China after a 7 percent drop in the CSI 300 Index of large-capitalization companies listed in Shanghai and Shenzhen amid deteriorating manufacturing data. Chinese policy makers, who went to unprecedented lengths to prop up stock prices during a summer rout, are trying to prevent financial-market volatility from weighing on economy set to grow at its weakest annual pace since 1990.

Rough Start

S&P Dow Jones Indices data indicate the first day of trading has no predictive power for the rest of the year. The index ends the year in the same direction it takes on the opening day 50.6 percent of the time, the data show. The first month of the year has proved more telling -- the gauge’s return in January determines its direction for the year 72.4 percent of the time.

After scaling new peaks and enduring its worst selloff in four years, the main U.S. equity index ended 2015 0.7 percent lower. Investor sentiment wavered last year between optimism that the economy was strong enough to handle higher borrowing costs and concern that China’s slowdown will hurt global growth, which exacerbated weakness in commodity prices and raw-material stocks.

The beginning of 2015 was also rocky, with the benchmark index dropping 2.7 percent in its first three sessions, followed by a two-day, 3 percent rally before eventually finishing January down 3.1 percent.

Meanwhile, investment strategies premised on buying shares based on their momentum just posted the best year since 2007, which isn’t great news for bulls. Past instances when momentum stocks -- defined as the ones showing the biggest gains in the last six to 12 months -- won have occurred closer to the end of rallies than the beginning, signaling indiscriminate buying at a time when more traditional share drivers such as earnings growth are starting to wane.

Escalating tensions between Saudi Arabia and Iran are also adding to worries Monday, according to Robert W. Baird & Co.’s Patrick Spencer. “Middle Eastern concern and the escalation compounded by further issues in China are all adding to short- term weakness,” said Spencer, equities vice chairman at Baird in London. “The outlook still looks reasonable and I would take any weakness to selectively buy, especially in the consumer and housing market recovery area.”

Focus will turn toward a swath of economic reports this week, including data on factory activity, the monthly jobs report and minutes from the Federal Reserve’s meeting that ended with the first rate increase since 2006. A reading today showed manufacturing in the U.S. contracted in December at the fastest pace since 2009 as factories, hobbled by sluggish global growth, cut staff at the end of 2015.

--With assistance from Joseph Ciolli and Camila Russo.

To contact the reporter on this story: Oliver Renick in New York at orenick2@bloomberg.net To contact the editors responsible for this story: Cecile Vannucci at cvannucci1@bloomberg.net John Shipman, Namitha Jagadeesh

© Copyright 2017 Bloomberg News. All rights reserved.

 
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2016-29-04
Monday, 04 Jan 2016 04:29 PM
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