Worries about sluggish growth in the world’s two largest economies drove U.S. stocks lower Monday, and added to losses racked up by the market in January.
The stock market had its worst day in more than seven months, and the Dow Jones industrial average plunged more than 320 points, as several U.S. economic measures added to worries about the global economy.
From Turkey to South Africa to Argentina, emerging markets also are being slammed, in their cases, by rising inflation, economic mismanagement and political turmoil. Overhanging it all is a nerve-jangling unknown: Whether developing countries as a group can withstand the end of the extraordinary easy-money policies that central banks have offered up for five years.
The short answer: A tentative yes.
Many economists note that the biggest threats in the developing world are confined to modest-size economies — South Africa, Turkey, Argentina — that seem unlikely to do much damage beyond their borders.
Domestically, the Dow fell 326.05 points, or 2.08 percent, to close at 15,372.80 Monday. The index fell as much as 342 points in the afternoon. The Standard & Poor’s 500 index lost 40.70 points, or 2.28 percent, to 1,741.89. The Nasdaq slid 106.92 points, or 2.6 percent, to 3,996.96
Investors moved into safer assets such as U.S. Treasurys. The yield on the 10-year note fell to 2.58 percent from 2.65 percent Friday.
A report Monday showed that U.S. manufacturing barely expanded last month. Signs of weakness in China’s manufacturing sector added to worries about developing economies.
Stocks opened lower after earlier declines in European and Japanese indexes. The sell-off accelerated in the U.S. after a private survey showed U.S. manufacturing barely expanded last month as cold weather delayed shipments of raw materials and caused some factories to shut down. There were other signs of weakness in the world’s largest economy.
Construction spending rose modestly in December, slowing from healthy gains a month earlier.
The report of sluggish U.S. manufacturing growth added to concerns about the global economy. Investors were unnerved by an earlier official Chinese manufacturing survey that showed factory output grew at a slower rate in January compared with December in the world’s second-biggest economy. The report released on the weekend followed an HSBC survey that showed an outright contraction in manufacturing.
A rough first day of trading in February extends January’s stock-market stumble. Concerns about the global economy, U.S. company earnings, as well as turmoil in emerging markets, led the Dow to its worst January since 2009. The index slid 5.3 percent last month, while the S&P 500 index fell 3.6 percent.
Investors are watching to see whether the market’s performance worsens into what some say is an overdue correction in the market, or a drop of 10 percent.
"There’s been a pretty significant change in sentiment for the market," says Erik Davidson, deputy chief investment officer for Wells Fargo Private Bank. "We’re down now more than 5 percent from the highs we reached at the end of last year. So that’s something a lot of people will be watching."
All 10 sectors in the S&P 500 index fell, and telecommunications stocks posted the biggest declines, weighed down by AT&T and Verizon Communications.
"The selling is an extension of last week’s activity," says Frank Davis, director of trading at LEK Securities. "It looks like a healthy sell-off."
Davis anticipates that the sell-off will continue, especially since most of the economic data coming out in the next few weeks is data could have been negatively affected by the severe winter weather in the U.S.
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