22/08/2015 11:05 AST
Stocks plummeted on global-growth fears for a second straight day Friday in a plunge that dragged the Dow industrials into correction territory.
The global market rout pummeled stocks and commodities as fresh evidence emerged that China's economy is slowing, spooking investors.
The Dow industrials lost 530.94 points, or 3.1%, to close at 16459.75, putting it in correction territory, as defined by a 10% decline from a recent high. The S&P 500 dropped 64.84 points, or 3.2%, to close at 1970.89. The Nasdaq Composite fell 3.5%, or 171.45 points, to 4706.04.
The Dow's more than 1,000-point drop this week was the largest weekly drop since the week ended Oct. 10, 2008.
U.S. oil prices also briefly dropped below $40 a barrel on Friday, a level not seen since the financial crisis.
Signs of a sharp slowdown in the world's second-largest economy have unnerved investors since Beijing surprised markets last week by devaluing its currency. Shares in the U.S., Asia and Europe have tumbled, along with commodity prices as investors fretted about waning Chinese demand just as supplies are surging.
The market turmoil has some traders exercising caution.
"You have a situation that's tough to play," said Christopher Cady, a New York-based trader. He said he closed out bets toward the end of the week that U.S. stocks would fall. "Nimble...is the new black."
The pan-European Stoxx Europe 600 ended the session 3.3% lower, closing out its biggest week of losses since August 2011. The index has now lost nearly 13% since its April peak, entering correction territory.
Earlier, the Shanghai Composite Index tumbled 4.3%, hitting its lowest level since March, despite Beijing's efforts to prop up the market in recent weeks. In Japan, the Nikkei fell 3% to a six-week low.
An early gauge of China's factory activity fell to a six-and-a-half year low in August, heaping further pressure on stocks and commodities after Thursday's global selloff.
"Now we've had some harder evidence that China is slowing relatively fast, people have chosen to get out," said Kiran Ganesh, a multiasset strategist at UBS Wealth Management, which oversees around $2 trillion of assets.
A surge in investor demand for assets considered safest during times of market stress sent the yield on 10-year U.S. Treasury bonds to 2.042%, its lowest level since April. Yields fall as bond prices rise.
The dollar fell by around 1% against the euro and Japan's yen. The euro and yen have recently tended to rise during times of market stress.
Some investors and analysts say they think the tumult in the markets could complicate the Federal Reserve's plans to raise interest rates.
"The Chinese have created an air of fragility around the globe. Markets will now surely have to firm up considerably for the Fed to pull the trigger next month," said Deutsche Bank analyst Jim Reid.
Ultralow interest rates have fueled a big rally in stock markets since the financial crisis. On Wednesday, minutes of the Fed's latest policy meeting showed officials were divided over when to raise rates, with some citing concerns over China's economy as a reason to hold back.
But a delay in lifting rates may bring little comfort to investors if slowing global growth is underpinning the Fed's caution.
Paul O'Connor, a senior fund manager at Henderson Global Investors, which manages GBP82 billion ($129 billion) in assets, said he has been selling stocks and buying bonds in recent months, fearing further spillover from the recent Chinese selloff.
"Is there a buying opportunity in stuff that has got beaten up, or will it start to erode confidence in developed market assets? We're in the latter camp," he said.
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