US stocks plunge over 3 per cent in China-driven rout

A news ticker in Times Square heralds a headline about the falling stock market on Aug 21, 2015, in New York City.
A news ticker in Times Square heralds a headline about the falling stock market on Aug 21, 2015, in New York City.AFP

NEW YORK (AFP) - US share prices plunged more than 3 per cent on Friday as China's economic problems drove a major selloff on Wall Street for a second day.

In its worst single session in nearly four years, the Dow Jones Industrial Average lost more than 500 points, or 3.12 per cent, while the broader S&P 500 gave up 3.19 per cent and the Nasdaq Composite shed 3.52 per cent.

The rout followed similar declines in Asian and European markets amid rising fears that China's slowdown will stall growth worldwide and even hit the relatively strong US economy.

Leading the drop among top companies was the world's largest firm by market valuation, Apple, which lost 6.1 per cent, or about US$37 billion (S$52 billion) in value.

But the carnage went across the board of tech, energy, industrial and finance companies, all exposed significantly to a China-led downturn in the global economy: Microsoft lost 5.7 per cent, Chevron 4.4 per cent, Bank of America 3.7 per cent, Boeing 3.9 per cent, and General Motors 4 per cent.

The Dow Jones Industrial Average, which powered to a series of record highs this year, finished down 530.94 points at 16,459.75.

The two-day selloff wiped out any gains made in 2015, taking the index of 30 blue chips - with Apple in the lead - to its lowest level since October last year.

The S&P 500 lost 64.84 points to 1,970.89, also taking it back to levels of last October.

The Nasdaq Composite, which had registered the strongest gains of the year, shed 171.45 points at 4,706.04, about 30 points below where it had ended in 2014.

"Sentiment is shifting in a very negative way and you really are seeing no place to hide today," said David Levy of Kenjol Capital Management.

Levy said the selloff was "overdone," but added that, without some sort of positive news, "there is no reason for buyers to step in and get long at this point."

"You have to keep your seatbelt buckled," he said.

Patrick O'Hare of said that underpinning the selloff is investors' losing faith in the ability of central bankers from Beijing to Washington to use monetary policy to stimulate growth.

But O'Hare also pointed to overly high valuations for US shares recently given modest growth prospects in the US economy.

"A market trading at roughly 17.5 times forward 12-month earnings is priced for much better things economically speaking that have yet to avail themselves as the Federal Reserve had hoped they would."

The selloff intensity matched that in Europe, where major indices lost between 2.8 per cent and 3.2 per cent.

"We have a challenging economic situation in China, which has now taken the extreme step of devaluing its currency to support its economy. That weakness is ricocheting through emerging markets and the global industrial sector," said Lisa Emsbo-Mattingly, director of asset allocation at Fidelity, in a client note.

Bond prices pushed up amid the bearish market turn and a 1.3 per cent fall in the dollar versus the euro, to US$1.1375.

The yield on the 10-year US Treasury fell to 2.05 per cent from 2.07 per cent, while the 30-year slipped to 2.74 per cent from 2.75 per cent. Bond prices and yields move inversely.