Black Monday hits global markets
Canadian stocks joined selloffs in the US, Europe and Asia, with the Standard & Poor’s 500 Index tumbling toward its first correction in almost four years. The S&P/TSX composite fell more than 700 points when it opened after Chinese shares sank the most since 2007 and stocks in Germany headed for a bear market. Commodities fell to a 16-year low as crude plunged 4.1 percent. The yen strengthened and 10-year Treasury yields slid below 2 percent for the first time since April.
“There is no doubt that the panic begets panic in this market,” Michael Holland, chairman at Holland & Co., said in a Bloomberg Television interview. “Yet you called Black Friday, we certainly have Black Monday morning starting for us, so it’s a psychological thing. It’s pervasive. It’s everywhere.”
More than $5 trillion has been erased from the value of global equities since China unexpectedly devalued the yuan on Aug. 11, fueling concern that the slowdown in the world’s second-largest economy is worse than anticipated. The rout is shaking confidence that the global economy will be strong enough to withstand higher U.S. interest rates, even as bets ease on a September increase.
The S&P 500 fell 2.6 percent at 11:38 a.m. in New York, bringing its loss from a May high to 10 percent. The Dow Jones Industrial Average sank 471 points. European stocks tumbled 5.3 percent, the most since 2011. The MSCI Emerging Markets Index slid 5 percent, for a seventh straight loss. Basic-resource producers led losses as Brent crude tumbled through $45 a barrel. Treasury 10-year note yields fell as low as 1.97 percent.
The Chicago Board Options Exchange Volatility Index jumped 34 percent to 38.51, the highest level since October. The gauge known as the VIX more than doubled last week, soaring 118 percent to 28.03.
“Everyone seems to be selling off, and there’s panic,” said Michael Woischneck who helps oversee the equivalent of $7.1 billion at Lampe Asset Management GmbH in Dusseldorf, Germany. “There’s no rational choice anymore, no rational reaction.”
While each of the S&P 500’s 10 main industries sank at least 2 percent Monday, losses were heaviest among some of the most-loved stocks, with Netflix Inc. and Amazon.com Inc. sliding more than 4 percent.
Apple Inc. retreated 1.9 percent after last week plunging into a bear market. In an unusual mid-quarter update on the business, Apple Chief Executive Officer Tim Cook said on CNBC Monday that the company is seeing “strong growth” in China through July and August.
The S&P 500’s rout sent valuations tumbling. The price-to- earnings ratio for the gauge sank to 16.76, the lowest level since the October pullback. Then, the measure bottomed just above 16.50, the cheapest since January 2014.
“It may overshoot in the near term to the downside, creating value for shareholders,” said Jeff Mortimer, the Boston-based director of investment strategy for BNY Mellon Wealth Management, which oversees almost $193 billion. “We are looking at those companies that don’t have as much international exposure,” and instructing portfolio managers to steer clear of large-caps.
Selling eased after the open, as investors sought opportunities among the biggest declines. The Dow lost nearly 1,100 points before cutting that slide in half, while the S&P 500 fell more than 5 percent in the first 10 minutes of trading.
“As prices go lower, we see selective opportunities to buy as opposed to a provocation to become more bearish,” said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, the private-banking unit of KeyCorp that oversees more than $25 billion in assets. “We’re emphasizing large-caps relative to smaller ones” and within the U.S., companies that are less export-oriented, he said.
Some prominent money managers and forecasts said the selling has gone too far, too fast. Jonathan Golub, chief market strategist at RBC Capital Markets, says the bloodbath in biotechnology and tech stocks is temporary, and investors should buy back the best performers of 2015.
Laszlo Birinyi, the investor whose bullish calls have repeatedly come true since 2009, says that while the selloff lashing global equities is painful, its cause is no mystery -- and that’s a reason for optimism.
“When the issues are on the table, the market will do what it has to to adjust and come out OK on the other end,” Birinyi, the president of Birinyi Associates in Westport, Connecticut, said in an interview on Bloomberg Radio’s “Surveillance” with Michael McKee. “That other end may be a while, and it may not be fun getting there.”
Doug Ramsey, the chief investment officer of Leuthold Weeden Capital Management LLC, whose quantitative research into market breadth, valuation and investor sentiment foreshadowed the drubbing in American stocks last week, says the selling will worsen.
All but three of the shares in the Stoxx Europe 600 Index retreated Monday, driving the gauge down 4.5 percent. Germany’s DAX Index retreated 3.9 percent, taking the decline from its peak in April to more than 20 percent.
Investors withdrew$1.9 billion from U.S. exchange-traded funds that buy in emerging-market stocks and bonds last week, the most since March.
In Asia, the Shanghai Composite Index slid 8.5 percent and Hong Kong’s Hang Seng Index fell 5.8 percent, tumbling further into a bear market. The measure is about 25 percent below an April high, with a gauge of price momentum dropping to the lowest since the October 1987 stock-market crash.
“This is a real disaster and it seems nothing can stop it,” said Chen Gang, Shanghai-based chief investment officer at Heqitongyi Asset Management Co.
Greater China equities plummeted, with Taiwan’s benchmark gauge dropping as much as 7.5 percent. More than $4 trillion was wiped from the value of Chinese equities from June 12 through Friday.
The Bloomberg Commodity Index fell 1.8 percent, heading for the lowest closing level since August 1999.
Brent and West Texas Intermediate crudes both traded at six-year lows of $43.48 and $38.89 a barrel, respectively. Gold, a haven for investors during volatile trading, was little changed at $1,159.60 an ounce, erasing earlier losses, while copper slipped 3.1 percent.
Currencies of basic resource-producing countries led declines, with the ruble tumbling 2.5 percent to 70.86 per dollar and Malaysia’s ringgit sliding 1.8 percent to a fresh 17- year low. South Africa’s rand dropped 2.1 percent and New Zealand’s currency weakened 1.8 percent.
Turkey’s lira retreated 1.2 percent. A deadline for a coalition government passed, putting the country on course for its second parliamentary election this year.
The yen advanced with the euro as Treasuries rallied amid speculation the global selloff will forestall the Federal Reserve’s first interest-rate increase since 2006.
Japan’s currency jumped 1.8 percent to 119.95 per dollar, the strongest since May 19 and the euro climbed for a fourth day against the dollar, strengthening to $1.15 for the first time since February.
Fed funds futures now show a probability of a December rate increase at 51 percent versus 61 percent on Friday. Bets on the first increase in rates in almost a decade in September fell to 28 percent, down from 34 percent. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase.
©2015 Bloomberg News
Stephen Kirkland and Jeremy Herron with additional material by Will Ashworth
--With assistance from Emma O'Brien in Wellington, Cecile Vannucci and Neil Denslow in London, Neo Khanyile in Johannesburg, Camila Russo in Madrid, Lu Wang, Joseph Ciolli and Anna-Louise Jackson in New York and Nick Gentle in Hong Kong.