(Bloomberg) -- The Standard & Poors 500 Index roared back from the brink of its first correction in nearly four years even as the rout in all but the riskiest of global assets worsened.
After the S&P 500 plunged more than 5 % and the Dow Jones Industrial Average erased 1,000 points in the opening five minutes of trading, stocks clawed back nearly three-fourths of their losses, slowing a global rout that saw Chinese shares sink the most since 2007 and stocks in Germany fall into a bear market. Commodities slid to a 16-year low as crude plunged 4.1%. The yen strengthened and 10-year Treasury yields slid below 2% for the first time since April.
We saw sufficient panic on the opening, said Bruce Bittles, chief investment strategist at Milwaukee-based Robert W. Baird & Co., which oversees $110 billion. The market can perhaps gather a rally now. It ultimately depends on whether the China situation results in a severe economic slowdown. It that happens, its going to ripple through the U.S.
More than $5 trillion has been erased from the value of global equities since China unexpectedly devalued the yuan on Aug. 11, fueling concern that the slowdown in the worlds second-largest economy is worse than anticipated. The rout is shaking confidence that the global economy will be strong enough to withstand higher U.S. interest rates, even as bets ease on a September increase.
The S&P 500 fell 1.1% at 12:32 p.m. in New York, paring a loss of more than 5%. The Dow Jones Industrial Average lost 158 points. European stocks tumbled 5.3%, the most since 2008. The MSCI Emerging Markets Index slid 5%, for a seventh straight loss. Basic-resource producers led losses as Brent crude tumbled through $45 a barrel. Treasury 10-year note yields fell as low as 1.97%.
Apple Inc. advanced 2.7% to lift technology stocks to the only gain among the 10 main groups. In an unusual mid- quarter update on the business Monday, Chief Executive Officer Tim Cook said on CNBC that the company is seeing strong growth in China through July and August. Last week Apple plunged into a bear market as investors sold their most-loved holdings.
The S&P 500s rout sent valuations tumbling. The price-to- earnings ratio for the gauge sank to 16.76, the lowest level since the October pullback. Then, the measure bottomed just above 16.50, the cheapest since January 2014.
It may overshoot in the near term to the downside, creating value for shareholders, said Jeff Mortimer, the Boston-based director of investment strategy for BNY Mellon Wealth Management, which oversees almost $193 billion. We are looking at those companies that dont have as much international exposure, and instructing portfolio managers to steer clear of large-caps.
Selling eased after the open, as investors sought opportunities among the biggest declines. The Dow lost nearly 1,100 points before cutting that slide in half, while the S&P 500 fell more than 5% in the first 10 minutes of trading.
As prices go lower, we see selective opportunities to buy as opposed to a provocation to become more bearish, said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, the private-banking unit of KeyCorp that oversees more than $25 billion in assets. Were emphasizing large-caps relative to smaller ones and within the U.S., companies that are less export-oriented, he said.
Some prominent money managers and forecasts said the selling has gone too far, too fast. Jonathan Golub, chief market strategist at RBC Capital Markets, says the bloodbath in biotechnology and tech stocks is temporary, and investors should buy back the best performers of 2015.
Laszlo Birinyi, the investor whose bullish calls have repeatedly come true since 2009, says that while the selloff lashing global equities is painful, its cause is no mystery -- and thats a reason for optimism.
When the issues are on the table, the market will do what it has to to adjust and come out OK on the other end, Birinyi, the president of Birinyi Associates in Westport, Connecticut, said in an interview on Bloomberg Radios Surveillance with Michael McKee. That other end may be a while, and it may not be fun getting there.
Doug Ramsey, the chief investment officer of Leuthold Weeden Capital Management LLC, whose quantitative research into market breadth, valuation and investor sentiment foreshadowed the drubbing in American stocks last week, says the selling will worsen.
The Chicago Board Options Exchange Volatility Index jumped 13% to 31.84, the highest level since November 2011. The gauge known as the VIX more than doubled last week, soaring 118 % to 28.03.
Everyone seems to be selling off, and theres panic, said Michael Woischneck who helps oversee the equivalent of $7.1 billion at Lampe Asset Management GmbH in Dusseldorf, Germany. Theres no rational choice anymore, no rational reaction.
All but three of the shares in the Stoxx Europe 600 Index retreated Monday, driving the gauge down 4.5%. Germanys DAX Index retreated 3.9 %, taking the decline from its peak in April to more than 20%.
Investors withdrew $1.9 billion from U.S. exchange-traded funds that buy in emerging-market stocks and bonds last week, the most since March.
In Asia, the Shanghai Composite Index slid 8.5% and Hong Kongs Hang Seng Index fell 5.8%, tumbling further into a bear market. The measure is about 25% below an April high, with a gauge of price momentum dropping to the lowest since the October 1987 stock-market crash.
This is a real disaster and it seems nothing can stop it, said Chen Gang, Shanghai-based chief investment officer at Heqitongyi Asset Management Co.
Greater China equities plummeted, with Taiwans benchmark gauge dropping as much as 7.5%. More than $4 trillion was wiped from the value of Chinese equities from June 12 through Friday.
The Bloomberg Commodity Index fell 1.8%, heading for the lowest closing level since August 1999.
Brent and West Texas Intermediate crudes both traded at six-year lows of $43.48 and $38.89 a barrel, respectively. Gold, a haven for investors during volatile trading, was little changed at $1,159.60 an ounce, erasing earlier losses, while copper slipped 3.1%.
Currencies of basic resource-producing countries led declines, with the ruble tumbling 2.5% to 70.86 per dollar and Malaysias ringgit sliding 1.8% to a fresh 17- year low. South Africas rand dropped 2.1% and New Zealands currency weakened 1.8%.
Turkeys lira retreated 1.2%. A deadline for a coalition government passed, putting the country on course for its second parliamentary election this year.
Japans currency jumped 1.8 % to 119.95 per dollar, the strongest since May 19 and the euro climbed for a fourth day against the dollar, strengthening to $1.15 for the first time since February.
Fed funds futures now show a probability of a December rate increase at 51 % versus 61 % on Friday. Bets on the first increase in rates in almost a decade in September fell to 28 %, down from 34 %. The calculation is based on the assumption that the effective fed funds rate will average 0.375 % after the first increase.
--With assistance from Emma O'Brien in Wellington, Cecile Vannucci and Neil Denslow in London, Neo Khanyile in Johannesburg, Camila Russo in Madrid, Lu Wang, Joseph Ciolli and Anna-Louise Jackson in New York and Nick Gentle in Hong Kong.
Register or login for access to this item and much more
All Financial Planning content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access