The markets have greeted the new year with massive slumps as the numbers in China trade and manufacturing begin to spook investors and institutions. The Dow Jones Industrial lost ground by nearly 400 points as the move to sell off Chinese equities intensified. The concerns were made all the worse thanks to whispers of slower growth in the year ahead in North America and Asian economies more generally.
The blue chip index had its worst start to a new year since 1932 with banking and technology stocks taking the S&P 500 lower. In fact right across the board there have been falls not see in a long time. The selloff has been sparked by weaker than expected numbers coming from China where weak factory and manufacturing data was released combined with numbers showing a contraction in US manufacturing being at its worst in six years adding to the fear that growth in the United States is beginning to slow.
The MSCI All-Country World Index fell 2.4 percent by 2:49 p.m. in New York, topping its slide of 1.5 percent to start 2001. The Standard & Poor’s 500 Index lost 2.2 percent, the most since September on a closing basis, after the gauge ended 2015 down 0.7 percent.
The S&P 500’s decline has it on track for the third-worst start to a year in data compiled by Bloomberg going back to 1927. The biggest first-day rout was in 1932 when the index sank 6.9 percent, followed by a 2.8 percent slide during the dot-com demise in 2001. In those two instances, the index averaged a full-year loss of 14 percent. Expand the data to include the five worst inaugural days, and the average full-year result is a gain of 5.1 percent.
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.
Focus will turn toward 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.
Gauges of volatility in the U.S. and Europe spiked, with the Chicago Board Options Volatility Index surging 22 percent. Its counterpart for the Europe Stoxx 50 also rose 22 percent.
The Stoxx Europe 600 Index fell 2.5 percent, capping its worst start of the year ever as almost 580 of its companies fell. Germany’s DAX Index, among the best performers in 2015, dropped 4.3 percent, the biggest slide for the export-driven gauge since the China-led rout in August.
Additional reporting: Bloomberg where some of this content was first published.
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