By Anora Mahmudova and Victor Reklaitis, MarketWatch
The global equity selloff sparked by a Chinese stock-market rout
spread to Wall Street on Monday, propelling U.S. stock indexes to
their fifth consecutive session of losses.
Disappointing earnings over the past week and lackluster
economic data has put pressure on the main equities, prompting
investors to sell risky assets such as stocks and commodities while
piling into havens such as Treasurys and gold.
The Nasdaq Composite , was hit the hardest, falling 48.85
points, or 1%, to 5,039.78. The tech-heavy index is now 3.4% below
its all-time high reached a weak ago.
The Dow Jones Industrial Average fell 127.94 points, or 0.7%, to
17,440.59, with 25 of its 30 members finishing lower.
The S&P 500 dropped 12 points, or 0.6%, lower at 2,067.64,
with nine of its 10 main sectors finishing lower. Energy and
materials stocks led the losses, while utilities were the lone
bright spot, finishing 1.3% higher.
A dramatic slide overnight in the Shanghai Composite , which
closed 8.5% lower for its biggest one-day slide since February 2007
(http://www.marketwatch.com/story/shanghai-plunges-8-on-worries-beijing-is-ratcheting-down-inflows-2015-07-27),
was the main reason for the market's drop. China watchers note the
rout in Shanghai has prompted Beijing to try to reassure investors
again
(http://www.marketwatch.com/story/what-china-watchers-are-saying-about-shanghais-ugly-selloff-2015-07-27).
European stocks also sold off, with the main benchmark, the
Stoxx Europe 600, dropping 2.2%.
Market reaction to better-than-expected durable-goods orders
also was negative, as investors continued to view each data-point
as a factor in the Federal Reserve's decision about the timing and
pace of interest rate hikes.
What strategists are saying: Brian Fenske, head of sales trading
at ITG, said a plunge of that size in any market will erode
investor confidence, referring to China.
"When any index falls 8.5%, it means there are many individual
stocks that are down 20%-30%. And this morning, investors are
concerned that a drop in China's stock market may spill over to
consumer confidence there," Fenske said.
Apart from macro headlines, investors were worried about
technical levels on the main indexes, as the S&P 500 closed
within a few points of a key technical level of 200-day moving
average at 2,064. The Russell 2000 closed just at the 200-day
moving average on Monday, after falling 0.9 to 1,214.71.
Albert Brenner, director of asset allocation strategy at
People's United Wealth Management, noted that when valuations are
high, stocks are sensitive to news and events, regardless of
whether they are relevant to fundamentals or not.
"While the 8.5% drop in China's stock market does not have too
much importance to companies earnings, it was not expected,
therefore investors reacted. But more importantly, it's the changes
in the commodity market that are driving recent weakness in
markets," Brenner said.
Economic reports: June durable-goods orders rose 3.4%, exceeding
analysts' expectations. However, business investments and shipments
remained soft.
Investors this week are waiting for clues on the timing of a
rate rise from the closely watched Federal Reserve meeting on
Tuesday and Wednesday. See: MarketWatch's Fed meeting preview
(http://www.marketwatch.com/story/fed-seen-staying-mum-but-second-quarter-gdp-report-pencils-out-as-game-changer-2015-07-26)
Movers & Shakers: Mylan NV (MYL) shares tumbled 14.5% action
after Teva Pharmaceuticals Industries Ltd. (TEVA) said it has
withdrawn its buyout offer for the maker of generic drugs. Teva
announced Monday that it is instead planning to buy Allergan PLC's
(AGN) generics business for $40.5 billion
(http://www.marketwatch.com/story/teva-buying-allergan-generics-for-405-billion-drops-mylan-bid-2015-07-27).
Teva shares soared 16%.
Read more in the Movers & Shakers column
(http://www.marketwatch.com/story/norfolk-southern-eastman-chemical-hartford-earnings-in-focus-2015-07-27)
Other markets: U.S. Treasurys rallied, sending the yields on the
10-year note down 4 basis points to 2.22%. Yields move inversely to
prices.
Gold futures gained ground
(http://www.marketwatch.com/story/gold-retakes-1100-as-dollar-slides-2015-07-27),
rising 1% to settle at $1,096.40 an ounce, benefiting from haven
demand as stocks mostly retreated world-wide. Crude prices fell
(http://www.marketwatch.com/story/oil-under-48-a-barrel-but-analysts-see-a-bottom-2015-07-27)
1.6% to settle at $47.39 a barrel and the dollar was lower against
its major rivals
(http://www.marketwatch.com/story/dollar-drops-versus-yen-euro-ahead-of-fed-meeting-2015-07-27).
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