DOW Kicks Off 2016 With A 400-Point Plunge On China Fears

The Dow Jones Industrial Average plunged about 400 points in early trade Monday as a 7% drop in Chinese stocks stoked a global selloff in stocks.

The Dow DJIA, -2.24% plunged nearly 411 points to 17,015, led by a drop in DuPont Inc. DD, -3.75% and American Express Co. AXP, -3.00%

The S&P 500 SPX, -2.20% fell about 45 points to 1,998, led by a decline in technology stocks, financials and industrials. Only the S&P 500’s energy sector showed a modest gain as Middle Eastern tensions helped lift crude-oil prices.

The S&P 500-tracking “SPY” ETF opened down nearly 2%. According to Bespoke Investment Group analysts, since the SPY SPY, -2.11% began trading in 1994, the ETF has only opened lower on the first trading day of the year twice in 22 years, and it has never opened lower by more than 1%.

Meanwhile, the Nasdaq Composite COMP, -2.89% cratered by 138 points at 4,869 as tech stocks took the brunt of Monday’s tumble.

China slump: The sharp losses followed an almost 7% slide in China’s Shanghai Composite Index SHCOMP, -6.86% on the back of a weak manufacturing reading. The slide activated a new circuit-breaker system for Chinese stocks, halting trading on the mainland for the rest of the day. European stocks also slumped.

“The rout in China is placing pressure on markets more globally, although it remains to be seen how long the hit to market sentiment will persist,” said economists at Investec in a note.

Last summer, a severe selloff in China’s stock market sparked a global market rout, which was seen as one of the reasons the U.S. Federal Reserve kept rates on hold at its September meeting.

Chinese officials announced plans for the circuit breaker system in December, as a measure to prevent the wild swings that accelerated this summer’s stock-market crash. But analysts and investors say the circuit breaker could trigger more selling, as the freeze spooks investors and losses snowball, setting off the halt all over again.

U.S. stocks ended 2015 mostly lower after a losing session on Thursday. Markets were closed Friday for New Year’s Day.

Saudi-Iran tensions: Investors also monitored developments in the Middle East, where a rift between Saudi Arabia and Iran raised concerns about further disruption to oil prices. Saudi Arabia over the weekend cut ties with Iran after attacks on its embassy in Tehran by people protesting the execution of prominent Shiite Muslim cleric Nemer al-Nemer.
Saudi Arabia executes prominent Shiite cleric(1:45)

Shiite cleric Nemer al-Nemer was among 47 people executed in Saudi Arabia on Saturday. The execution sparked protests around the globe.

Oil prices CLG6, +2.86% spiked on the tensions between Saudi Arabia and Iran, but have since pared gains somewhat. Gold prices GCG6, +1.74% were also higher, as the uncertainty spurred a flight to havens.

Data: The Markit purchasing managers index for the U.S. manufacturing sector for December is due at 9:45 a.m. Eastern Time.

The ISM manufacturing index is due at 10 a.m. Eastern. It is forecast to rise to 49.1% in December from 48.6% in November, according to economists polled by MarketWatch. Also due at 10 a.m. Eastern are the figures on construction spending for November.

Movers: Pharmaceutical company Baxalta Inc. BXLT, +2.70% jumped after speculation Shire PLC SHP, -4.58% is close to completing a takeover of its U.S. rival. U.S.-listed Shire shares SHPG, -3.94% were down.

Shares of Tesla Motors Inc. TSLA, -8.56% dropped sharply after the electric car maker released delivery numbers for the fourth quarter on Sunday.

Netflix Inc. NFLX, -7.42% slid after Baird Equity Research downgraded the stock to neutral and said risk-reward is balanced following its recent strength. Inc. AMZN, -5.88% fell after Monness Crespi Hardt downgraded the stock to neutral from buy and suspended its price target.

PayPal Holdings Inc. PYPL, -2.93% fell after a downgrade to sell from neutral at Monness Crespi Hardt amid concerns about the payment company’s long-term prospects due to increased competition.

Other markets: European stock markets SXXP, -2.23% skidded, with Germany’s DAX 30 index DAX, -3.92% off more than 4% and on track for its worst day since August.

The dollar traded mixed against other major currencies, although the ICE Dollar Index DXY, +0.13% was down 0.4% at 98.213.


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