Stocks fall 2%; Dow plunges 400 after US data, China market rout

U.S. stocks traded sharply lower Monday, the first day of trade for the year, weighed by renewed concerns of global economic slowdown and increased tensions in the Middle East. The overnight drop in Chinese stocks that triggered a circuit breaker also pressured sentiment.

U.S. data reaffirmed concerns about global manufacturing. The U.S. December ISM Manufacturing Index was 48.2, below expectations and down from November’s 48.6 print.

“That’s not helping because last week we had a couple more minor PMI readings and they showed the same thing,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

Last Thursday, the Chicago PMI came in at 42.9 for December, down from 48.7 in November.

The Nasdaq composite held more than 2.5 percent lower, while the Dow Jones industrial average traded about 360 points lower after briefly falling more than 400 points. Apple temporarily fell more than 2 percent in morning trade.
The S&P 500 briefly fell more than 2 percent in morning trade to below the psychologically key 2,000 level.
Information technology and financials fell more than 2.5 percent in morning trade to lead most S&P 500 sectors lower. Energy briefly attempted gains as oil traded higher.

“A lot of it has to do with China and a lot of it is overdone,” said Art Hogan, chief market strategist at Wunderlich Securities. “The China PMI hasn’t changed much. It’s not unusual to have an outsized reaction when you’ve got a base case that 2016 could be a tough year.”
“I think it’s very much global markets are in a risk-off mode. It’s very hard to step in the way of (that),” he said.

Dow futures were down more than 300 points prior to the market open. European stocks also traded deep in the red, with the DAX more than 4 percent lower and the STOXX Europe 600 off about 2.4 percent as of 10:28 a.m., ET.

Read MoreMideast tensions adds to busy week for markets

Oil traded higher amid increased tension in the Middle East, with WTI up more than 2 percent around $37.90 a barrel and Brent more than 3 percent higher near $38.50 a barrel.

Saudi Arabia, the world’s biggest oil exporter, cut diplomatic ties with Iran on Sunday in response to the storming of its embassy in Tehran. The protest followed Saudi Arabia’s execution of a prominent Shi’ite cleric.

Oil tanker
Oil up 3% as market ponders future Iran exports
Chinese stocks plunged Monday after Caixin manufacturing PMI showed continued contraction in that area of the economy.
Traders also reduced positions in small caps ahead of the Friday expiration of a six-month selling ban imposed on the major shareholders of listed companies, StreetAccount said. The Chinese yuan also weakened to hit its lowest since 2011.

The Shanghai and Shenzhen exchanges ended the trading session early after the CSI 300 dropped 7 percent, triggering a circuit breaker. The halt was the first implementation of the new circuit breaker rule announced September.

Read MoreChina circuit breakers: What you need to know

China’s Shanghai composite lost nearly 6.9 percent for its worst day since Aug. 25, 2015.

Over the weekend, China reported manufacturing PMI that remained below the 50 level that indicates contraction. The official manufacturing PMI for December was 49.7 after posting 49.6 in November, while the Caixin December manufacturing PMI was 48.2 versus November’s 48.6.

The official services PMI edged higher to 54.4 from 53.6 the prior month.

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In other U.S. economic news, the December U.S. Markit manufacturing PMI was 51.2. Construction spending fell 0.4 percent in November.

Treasury yields hit their lowest levels in a week. The 2-year yield held near 1.03 percent and the 10-year yield was around 2.22 percent as of 10:30 a.m., ET.

The U.S. dollar traded a touch higher against major world currencies, with the euro near $1.08 and the yen at 119.24 yen against the greenback.

Gold traded more than 1.5 percent higher to hit its highest level in almost two weeks.
U.S. stocks closed lower Thursday, the last day of trade for 2015. The S&P 500 and Dow Jones industrial average posted losses for the year, their worst annual performance since 2008.

The Russell 2000 and Dow transports also had their worst year in seven.
The Nasdaq composite ended more than 5.5 percent higher for 2015, helped by outperformance in biotech stocks and major tech names, except Apple. The iPhone maker’s stock turned in its first negative year since 2008.
Read More Early movers: MCD, EMC, NFLX, CMG, LULU, TSLA, LVS, NOK, P & more

In morning trade, the Dow Jones Industrial Average traded down 356 points, or 2.05 percent, to 17,068, with DuPont leading all constituents lower.

The S&P 500 traded down 40 points, or 1.94 percent, to 2,004, with information technology leading nine sectors lower and energy the only advancer.

The Nasdaq composite fell 120 points, or 2.41 percent, to 4,887.

The Dow transports traded 2.5 percent lower.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, topped 23 to hit its highest level in two weeks.
About six stocks declined for every advancer on the New York Stock Exchange, with an exchange volume of 112 million and a composite volume of 390 million.

Crude oil futures for February delivery gained 92 cents to $37.97 a barrel on the New York Mercantile Exchange. Gold futures for February delivery rose $17 to $1,077.20 an ounce as of 9:41 a.m., ET.

On tap this week:

5:30 p.m.: San Francisco Fed President John Williams speaks on the implementation of macroprudential policies by central banks at the AEA Annual Meeting in California.

Earnings: Eli Lilly (2016 guidance only), Sonic

December light vehicle sales announced
Earnings: Monsanto, RPM International

7 a.m.: Mortgage applications
8:15 a.m.: ADP employment report
8:30 a.m.: International trade
9:45 a.m.: PMI services index
10 a.m.: Factory orders and ISM non-manufacturing index
10:30 a.m.: Oil inventories
2 p.m.: FOMC minutes
Earnings: Walgreens Boots Alliance, Constellation Brands, Finish Line, KB Home, Bed Bath & Beyond, PriceSmart, Ruby Tuesday, Synnex, The Container Store, WD-40

7:30 a.m.: Challenger job-cut report
8:45 a.m.: Richmond Fed President Jeffrey Lacker speaks on the economic outlook for January 2016 at the Greater Raleigh Chamber of Commerce in Raleigh, North Carolina.
8:30 a.m.: Jobless claims
10:30 a.m.: Natural gas inventories
2:15 p.m.: Chicago Fed President Charles Evans speaks on economic conditions and monetary policy at the Wisconsin Economic Forecast Luncheon in Madison, Wisconsin.
4:30 p.m.: Fed balance sheet/money supply
Earnings: Acuity Brands

8:30 a.m.: Non-farm payroll, unemployment rate and average hourly wages

10 a.m.: Wholesale trade
1 p.m.: Rig count
3 p.m.: Consumer credit and Treasury STRIPS
*Planner subject to change.

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