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Dow Enters Correction After Biggest Selloff in Four Years

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Stocks plunged Monday as the market downturn showed no signs of letting up with the Dow tumbling as much as 1,089 points in the opening minutes of trading.

Sharp early losses were pared in later morning trading but stocks were still down substantially. The Standard & Poor’s 500 index plunged as much as 100 points as it dipped into correction territory before cutting its losses to about 50 points, or a drop of 2.5%.

The Dow was down about 350 points, or 2.1% and the Nasdaq composite index dropped 100 points, or 2.1% after being down as much as 5% earlier.

Market anxiety is on the rise after a big sell-off in China overnight, where the Shanghai composite index shed 8.5%, its biggest one-day decline since 2007 — and Chinese media were dubbing the selloff “Black Monday.” The global stock rout then moved to Europe where major indexes there are off roughly 5%.

“Bad break,” is the way Edward Yardeni, chief investment strategist at Yardeni Research, described the global tumult in stock markets around the globe.

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“It’s a really cruel summer,” Savita Subramanian, equity and quant strategist at Bank of America Merrill Lynch told clients in a report before the opening bell. “Call it derisking, a flight to quality, a momentum meltdown, or the first signs of a global recession,” but the fact is the past week saw the first pullback of greater than 5% since last October and the worst week since September 2011, she added.

The massive selloff, which kicked into high gear last week when the Dow tumbled more than 1,000 points and sank into official correction territory, which is defined as a drop of 10% or more. Wall Street is still trying to gauge what will stop the landslide and stabilize the battered market, how bad the ultimate decline will be, and when it’s safe to dive back into the market and seek out battered stocks.

The sell off has been driven by growing fears that China’s economy, the world’s second-biggest and once the engine of world growth, is slowing more than many investors had thought, raising fears that a global economic relapse will ensue, hurting corporate profits for companies in the U.S. and the rest of the globe.

Heading into today’s trading session, the broad S&P 500 was 7.5% below its May 21 record closing high of 2,130.82.

The Nasdaq heads into the new week 9.8% off its record close of 5218.86.

Yardeni sums up the big question facing investors: “Is the latest panic attack likely to be followed by yet another relief rally, or was last week’s stock market rout the beginning of a bear market?” (A drop of 20% or more.)

The small-company Russell 2000 also dipped into correction territory along with the Dow last week, and enters today’s action down 10.7% from its June 23 peak.

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“Dow Enters Correction After Biggest Selloff in Four Years”