Growing concerns about a slowdown in China shook markets around the world on Friday, driving the U.S. stock market to its biggest drop in nearly four years.
The rout started in Asia and quickly spread to Europe, battering major markets in Germany and France. In the U.S., the selling started early and never let up. Investors ditched beaten-down oil companies, as well as Netflix, Apple and other technology darlings. Oil plunged below $40 for the first time since the financial crisis, and government bonds rallied as investors raced into hiding spots.
"Investors are wondering if growth isn't coming from the U.S. or China, where is it going to come from?" said Tim Courtney, chief investment officer of Exencial Wealth Advisors. "This is about growth."
By the time it was over, the Standard and Poor's 500 index had lost 5.8 percent for the week, its worst weekly slump since 2011. That leaves the main benchmark for U.S. investments 7.7 percent below its all-time high — within shooting range of what traders call a "correction," a 10 percent drop from a peak.
Markets began falling last week after China announced a surprise devaluation of its currency, the yuan. Investors have interpreted China's move as a sign that flagging growth in world's second-largest economy could be worse than government reports suggest. On Friday, they got more bad news: A private survey showed another drop in manufacturing on the mainland.
The Standard & Poor's 500 index dropped 64.84 points, or 3.2 percent, to close at 1,970.89.
The Dow Jones industrial average fell 530.94 points, or 3.1 percent, to 16,459.75. That's 10 percent off its high, a correction.
The Nasdaq slid 171.45 points, or 3.5 percent, to 4,706.04.
That's unwelcome news for anyone with a 401(k) invested in stocks, but they shouldn't panic and try to time the market's swings, said Quincy Krosby, market strategist for Prudential Financial.
"The difficult thing is it's easy to get out of the market, but it's difficult to get back in," she said. "You can take the money out now, and then you sit and wonder 'wait a minute is the market going to go up?'"
Traders have been worried about slowing growth in China and its potential impact on the U.S.
Those worries are valid, said Jeremy Zirin, head of investment strategy at UBS Wealth Management.
"But there doesn't seem to be any signal that the weakness abroad is slipping into the U.S. economy," he said.
Investors pointed to other reasons behind the recent sell-off, such as falling prices for oil and other commodities as well as the relatively high prices investors pay for U.S. stocks compared with corporate earnings.
"All of this is coming at a time when we haven't had a correction" in many years, Zirin said. The last time the market slipped into a correction was in October 2011.
Until recently, investors seemed willing to shrug off any worrying news, confident that low interest rates from the Federal Reserve and rising corporate profits would help push stocks higher. As a result, big drops were soon followed by big gains and the market would continue on its six-year run. The S&P 500 has more than tripled in value since the financial crisis.
Roberto Perli, head of global monetary policy research at Cornerstone Macro, said the market's recent slump likely means the Federal Reserve won't raise its benchmark interest rate at its September meeting. Fed officials gathering next month will have to weigh the global pressures against evidence of a solid U.S. job market and improving U.S. economic growth.
"They have the luxury of being able to wait and see what happens," Perli said. "But if the meeting was tomorrow, it's probably fair to say that they wouldn't tighten given all the turmoil in the global markets."
For all the markets' jitters, many economists say they remain confident that the U.S. economy is resilient enough to withstand a slowdown in the developing world. And Europe's economy appears to be emerging from its long slump.
Major markets in Europe finished with deep losses on Friday. France's CAC-40 fell 3.2 percent while Germany's DAX lost 2.9 percent. In Britain, the FTSE 100 index dropped 2.8 percent.
In Asia, the Shanghai Composite index suffered another steep drop of 4.3 percent. Japan's Nikkei 225 lost 3 percent, South Korea's Kospi shed 2 percent and Hong Kong's Hang Seng fell 1.5 percent.
Back in the U.S., government bond prices rose, pushing the yield on the 10-year Treasury note down to 2.04 percent.
In the commodity markets, gold gained $6.40 to settle at $1,159.60 an ounce. Crude oil briefly dipped below $40 a barrel for the first time since March of 2009. U.S. crude fell 87 cents to close at $40.45 in New York.
A wide range of commodities have been hammered this year as demand for raw materials has cooled and as the U.S. dollar gains strength against currencies used by developing countries. Investors who once flocked to emerging-markets like Brazil and Russia now shun them. Slower growth in China means their top customer no longer needs the commodities they sell.
Some argue that this isn't necessarily bad news. Beijing is trying to shift from an economy that relies on selling cheap goods abroad to one based on steady consumer spending.
For U.S. investors, the sudden sell-off that hit this week is likely another bump in the road, Zirin said, a short stretch when investors' worries about the global economy bubble over. Otherwise, he said, given the strength of the U.S. economy, the market's swoon was a "bit perplexing."
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