U.S. stocks dropped, with the Standard & Poor’s 500 Index flirting with a correction, as a selloff in global equity markets deepened.
All of the benchmark index’s main groups tumbled, with raw materials shares approaching a two-year low while energy companies slumped to the lowest since October 2011. Citigroup Inc. and JPMorgan Chase & Co. fell at least 3.1 percent as banks retreated the most since March.
The S&P 500 slid 2.2 percent to 1,928.22 at 10:53 a.m. in New York, with the benchmark down 9.6 percent from its May all- time high. The gauge pared a drop of as much as 5.3 percent. The Dow Jones Industrial Average lost 337.96 points, or 2.1 percent to 16,121.79. The Nasdaq Composite Index slid 2.1 percent to its lowest since February after earlier losing as much as 8.8 percent.
“Investors in China have lost confidence in the central bank, and it’s a very alarming and difficult situation for the markets,” said Bruce Bittles, chief investment strategist at Milwaukee-based Robert W. Baird & Co., which oversees $110 billion. “It ultimately depends on whether the China situation results in a severe economic slowdown. It that happens, it’s going to ripple through the U.S.”
The Chicago Board Options Exchange Volatility Index jumped 32 percent to 36.90, trimming an earlier 90 percent surge that temporarily sent the gauge to its highest level since January 2009.
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.
Calm in the U.S. market shattered last week, with volatility soaring by the most on record as the Dow entered a correction and investors dumped the biggest winners of 2015. A gauge of volatility expectations more than doubled last week. Shares succumbed to a global selloff that’s wiped more than $5 trillion off the value of equities around the world since China’s shock currency devaluation on Aug. 11.
Moreover, speculation had been building all year for the Federal Reserve to raise interest rates in September for the first time since 2006, following the end of quantitative easing in 2014.
Traders are now pricing in less than a one-in-four chance the central bank will act next month, from about 48 percent just before the yuan devaluation, as the rout in equity markets has shaken confidence that the global economy will be strong enough to withstand higher U.S. rates.