(Bloomberg) -- A wave of selling gripped global markets as the rout in all but the safest assets deepened.

U.S. stocks joined selloffs in Europe and Asia, though the Standard & Poor’s 500 Index cut the worst of its losses by more than half. Chinese shares tumbled by the most since 2007 and stocks in Germany headed for a bear market. Commodities fell to a 16-year low as crude plunged 5%. The yen strengthened and 10-year Treasury yields slid below 2% for the first time since April.

“There is no doubt that the panic begets panic in this market,” Michael Holland, chairman at Holland, said in a Bloomberg Television interview. “Yet you called Black Friday, we certainly have Black Monday morning starting for us, so it’s a psychological thing. It’s pervasive. It’s everywhere.”

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 world’s 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 2.2% at 10:26 a.m. in New York, trimming a drop of more than 5%. The Dow Jones Industrial Average sank more than 1,000 points before gaining back 700 points. European stocks tumbled 5.3%, the most since 2008. The MSCI Emerging Markets Index slid 6%, 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%.

The Chicago Board Options Exchange Volatility Index jumped 34% to 38.51, the highest level since October. The gauge known as the VIX more than doubled last week, soaring 118% to 28.03.

“Everyone seems to be selling off, and there’s panic,” said Michael Woischneck who helps oversee the equivalent of $7.1 billion at Lampe Asset Management GmbH in Dusseldorf, Germany. “There’s no rational choice anymore, no rational reaction. The Americans will add to the European selling.”

While each of the S&P 500’s 10 main industries sank at least 2% Monday, losses were heaviest among some of the most-loved stocks, with Netflix and Amazon.com sliding more than 4%.

Apple retreated 2.7% after last week plunging into a bear market. In an unusual mid-quarter update on the business, Apple Chief Executive Officer Tim Cook said on CNBC Monday that the company is seeing “strong growth” in China through July and August.

The S&P 500’s 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.

Some prominent money managers and forecasts have 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 that’s 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 Radio’s “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.

All of the shares in the Stoxx Europe 600 Index retreated Monday, driving the gauge down 6.5%. Germany’s DAX Index retreated 5.5%, taking the decline from its peak in April to more than 20%.

Investors withdrew$1.9 billion from U.S. exchange-traded funds that invest in emerging-market stocks and bonds last week, the most since March.

In Asia, the Shanghai Composite Index slid 8.5% and Hong Kong’s 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.

Greater China equities plummeted, with Taiwan’s 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 2.7%, heading for the lowest closing level since August 1999.

Brent and West Texas Intermediate crudes both traded at six-year lows of $43.65 and $38.76 a barrel, respectively. Gold, a haven for investors during volatile trading, was little changed at $1,161.41 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 Malaysia’s ringgit sliding 1.8% to a fresh 17- year low. South Africa’s rand dropped 2.1% and New Zealand’s currency weakened 1.8%.

Turkey’s lira retreated 1.2%. A deadline for a coalition government passed, putting the country on course for its second parliamentary election this year.

The yen advanced with the euro as Treasuries rallied amid speculation the global selloff will forestall the Federal Reserve’s first interest-rate increase since 2006.

Japan’s 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.

Read more:

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

Don't have an account? Register for Free Unlimited Access