January 05, 2015

Dow trims losses, sheds 276 after earlier freefall

Adam Shell , USA TODAY 5:37 p.m. EST January 4, 2016

So much for a fresh start on Wall Street after a lackluster 2015, when the S&P 500 index closed down 0.7%, its first down year since 2008.

2016's rocky beginning came as many of the same worries that held stocks back last year reappeared, prompting investors to sell stocks and reduce risk.

"New year but same old problems for investors — worries about growth prospects in China, instability in Middle East and on-going concerns related to weak growth among emerging markets," said Joe Quinlan, chief market strategist at U.S. Trust. "For 2016, investors should brace for a volatile grind across most asset classes."

"It's looking to be an ugly start to the new year," said Josh Selway, analyst at Schaeffer's Investment Research.

As with last year's big scares, China is again the epicenter of investor angst to start 2016.

A weaker-than-expected reading on Chinese manufacturing that showed continued contraction in one of the world's most important economies raised fresh fears about the global growth outlook for 2016 and the profit outlook for companies around the globe. It also sparked a massive stock market sell-off in mainland China, where shares tumbled more than 7%, forcing authorities to halt trading for the day before the normal closing time.

It was the worst start to the year for China stocks ever, according to Bloomberg, and the Shanghai composite's worst one-day drop since a 7.6% decline on Aug. 25, 2015.

The steep drop of mainland China's shares "brings back dark memories of collapses experienced last summer" amid similar tumult in China, Paul Hickey of Bespoke Investment Group told clients in a report.

But Quinlan of U.S. Trust says "it is critical for investors to understand that the stock market doesn't accurately reflect the underlying strengths of the real economy in China."

Under a new market "circuit breaker" rule in China established last year, which is designed to slow down markets and halt panic in the event of moves of 5% or more, the CSI 300, a large-company stock index in mainland China was halted for 15 minutes in mid-afternoon trading Monday after diving more than 5%. But when shares headed lower once again just minutes after the initial trading halt, and losses for the day swelled to more than 7%, the new circuit breaker rules kicked in, prompting an early shutdown of mainland China's stock market on its first trading day of 2016, according to Bloomberg.

Fresh data on U.S. manufacturing added to investor fears about a global economic slowdown. An index of U.S. factory activity fell to 48.2 from 48.6, the Institute for Supply Management said Monday. That's the lowest level since June 2009 and the second straight month of reading below 50, signaling contraction in the sector.

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