A sharp slump in Chinese markets heaped further pressure on stocks Monday, sending the Dow Jones Industrial Average to its lowest level in nearly six months after patchy economic data and corporate earnings spurred declines last week.
China stocks suffered their sharpest drop in eight years amid concerns the government is pulling back on measures to prop up the market. The Shanghai Composite Index ended down 8.5%, its second-straight day of losses and worst daily percentage fall since Feb. 27, 2007.
The losses spilled over to the U.S., with the Dow Jones Industrial Average losing 127.94 points, or 0.7%, to 17440.59, its lowest close since Feb. 2.
The S&P 500 index shed 12.01 points, or 0.6%, to 2067.64, and the Nasdaq Composite Index dropped 48.85 points, or 1%, to 5039.78.
The slide prompted heavy selling in European stocks, with the Stoxx Europe 600 closing 2.2% lower, its biggest one-day percent decline in a month. Germany’s DAX and France’s CAC 40 both shed 2.6%, while the U.K.’s FTSE 100 lost 1.1%. Commodities, including crude oil and copper, tumbled.
The slide in Chinese shares has shaken investors in recent weeks and raised questions about the underlying economic health and pace of growth of the once-booming economy. Monday’s decline marks the fifth-straight day of losses for both the S&P and the Dow. The S&P 500 is now up just 0.4% for the year. The Dow, which had its steepest point decline last week since December, has lost 2.2% so far this year.
“The problems we are now seeing in China are the inevitable result of an economy that had grown too fast and at any cost,” said Michael Farr, president of financial adviser Farr, Miller & Washington, which manages about $1.2 billion. He added that China’s massive economic footprint means “China is a much bigger risk right now than Greece ever was.”
Meanwhile, Treasury prices rose as investors sought haven assets, pushing the yield on the 10-year note down to 2.232% from 2.271% on Friday. Gold futures rose 1% to $1096.50 an ounce.
“When a major index goes down 8% in one day, it’s going to impact investor sentiment for sure,” said Michael Antonelli, equity sales trader at Robert W. Baird. “The unknowns are really large there in terms of what the government can do to intervene in the market.”
A sharp rally two weeks ago after Greece reached a deal with its creditors to negotiate a new bailout has foundered amid lackluster earnings in Europe and the U.S., said François Savary, who oversees $11.4 billion as chief strategist at Swiss bank Reyl.
“There are a lot of bets that the economic recovery in Europe is here and that is going to boost earnings,” he said. “So far it is OK, but it isn’t stellar.”
A slump in commodities prices underscored worries over slowing growth. Crude-oil futures lost 1.6% to $47.39 a barrel, falling to their lowest level since March 20. Copper prices shed 1.3%.
Utilities stocks were the only major sector to post gains. Investors have sought out high-dividend-paying companies when bond yields fall. S&P 500 utilities stocks gained 1.3%. Energy companies in the S&P lost 1.4%.
Monday was light on earnings updates. The pace of quarterly reports picks up later this week with results due from Ford Motor Co., Facebook Inc. and Procter & Gamble Co.
In corporate news, Teva Pharmaceutical Industries Ltd. said it would buy Allergan PLC’s generics unit for $40.5 billion in cash and stock. Separately, Teva said it would drop its bid for Mylan NV. Teva shares rose 8.9%, and those of Allergan added 6.1%.
Earnings were again in focus in Europe on Monday. Swiss bank UBS AG declined despite second-quarter profit that exceeded forecasts. Airline Ryanair Holdings PLC also fell after it didn’t raise its full-year profit guidance.
Consumer products giant Reckitt Benckiser Group PLC climbed after reporting a rise in earnings.
Given relatively high valuations, equity markets “need better earnings” to drive further gains, said Ian Williams, economist and strategist at Peel Hunt.