Stocks Tumble on Weak Chinese Data
Dow industrials, S&P 500 decline about 3%
By
Corrie Driebusch
Updated Sept. 1, 2015 4:41 p.m. ET
U.S. stocks tumbled Tuesday as fears about a slowdown in China’s economy deepened, illustrating how last week’s market volatility has not yet abated.
In recent weeks, stocks, currencies and commodities have swung dramatically on signs of a slowdown in Chinese growth. Disappointing economic data out of the world’s second-largest economy, as well as the country’s devaluation of its currency, have exacerbated concerns.
On Tuesday, China’s official manufacturing purchasing managers index for August fell to its lowest level in three years, data that corroborated earlier indications of a slowdown from a narrower gauge on manufacturing activity.
“This realization that this slowdown is broader than investors thought is what’s causing this market volatility,” said Clement Miller, portfolio manager for Wilmington Multi-Manager International Fund, which manages about $500 million. “Investors are getting more scared.”
The Dow Jones Industrial Average tumbled 469.68 points, or 2.8%, to 16058.35. The S&P 500 declined 3% and the Nasdaq Composite fell 2.9%.
For the year, the Dow industrials are down 9.9%.
Shares in Europe and Asia posted losses. The price of oil, which had rallied in recent days, slumped.
After calmer sessions on Friday and Monday, traders and investors said they were hoping last week’s volatility had passed.
“Clearly this is showing us we’re not out of the woods by any means,” said Jonathan Corpina, senior managing partner at Meridian Equity Partners.
“Under normal circumstances maybe our market wouldn’t be so volatile and take this information so severely, but this shows our market is still fragile,” he said, noting that the mood on the floor of the New York Stock Exchange was “here we go again.”
According to traders, what triggered the sharp selloff was China’s official manufacturing purchasing managers index for August, which fell to 49.7, from 50.0 in July, marking its lowest level since August 2012. A number below 50.0 implies a contraction. Separately, the Caixin manufacturing purchasing managers index, a gauge of nationwide manufacturing activity, fell to more than a six-year low in August, according to Caixin Media Co. and research firm Markit.
Adding to concerns about a slowdown in economic growth were comments from Christine Lagarde, managing director of the International Monetary Fund. Ms. Lagarde said Tuesday that the organization expects global economic growth to weaken and that Asia risks slowing further because of the recent volatility in financial markets.
“Asia as a region is still expected to lead global growth,” Ms. Lagarde said in a speech at the University of Indonesia. But even in Asia, the pace “is turning out a little bit slower than expected—with the risk that it may even slow further given the recent spike in global risk aversion and in financial market volatility.”
Despite continued worries overseas, newly released economic data in the U.S. has remained rather buoyant. Last Friday, the Commerce Department said U.S. consumer spending rose in July, and last Thursday a reading of gross domestic product showed a stronger second-quarter expansion than initially estimated.
As a result, the extent of the spillover of China’s stock-market declines to the U.S. has some investors scratching their heads.
“For us, it’s a question of ‘Are we missing something?’” said Stephen Freedman, senior investment strategist at UBS Wealth Management Americas. “Is this downward volatility telling us something about the fundamental picture in the U.S. that we’re not seeing?”
So far, Mr. Freedman said he sees no change in U.S. fundamentals and remains relatively upbeat about the long-term performance of U.S. stocks. He added that he was encouraging clients to use this as an opportunity to invest in sectors such as technology and energy rather than have alarm bells go off.
Worries about China have battered stocks all over the world. Stock indexes suffered their biggest monthly losses in years in August. The Stoxx Europe 600 had its largest one-month percentage decline since August 2011. The Dow fell 6.6%, representing its biggest monthly percentage decline since May 2010. The Shanghai Composite fell 12.5%, notching its third straight month of declines.
The Stoxx Europe 600 closed 2.7% lower on Tuesday. The Shanghai Composite fell nearly 5% before ending the day down 1.2%. Hong Kong’s Hang Seng Index fell 2.2% and Japan’s Nikkei lost 3.8%.
In addition to turmoil in the stock market, commodities around the world have swung sharply in the weeks since China devalued the yuan, interpreted by some as a sign of Beijing’s concern about slowing growth.
The euro, which in recent months has tended to do well during times of market stress, was 0.7% higher against the U.S. dollar at $1.1307. The dollar was 1.2% lower against Japan’s yen at ¥119.6900.
The U.S. oil benchmark fell 7.7% to $45.41 a barrel after oil prices had surged over the previous three trading sessions. Gold rose around 0.6% to $1,138.70 a troy ounce.
—Josie Cox contributed to this article.
Write to Corrie Driebusch at corrie.driebusch@wsj.com
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