(Bloomberg) — What has been the weakest month for U.S. stocks began with a selloff as the rout in risk assets around the world resumed amid fresh signs China’s slowdown is hampering global growth.
The Standard & Poor’s 500 Index swooned into September with its third-biggest loss in 2015 as the beating that erased $5.7 trillion from the value of global equities last month continued. Crude tumbled the most in seven months, while emerging-market assets sank. A measure of risk premium on high-yield debt jumped the most in nearly a month in a sign of waning investor confidence, while demand for haven assets surged.
“September is the worst month of the year historically and that’s scaring people a little bit,” Peter Tuz, who helps manage more than $430 million as president of Chase Investment Counsel Corp. in Charlottesville, Virginia, said by phone. “The China PMI seemed to set it off but people are deciding this morning to take some money off the table, just sitting on cash for a while and that’s feeding on itself on top of a down day already.”
The S&P 500 fell 2.9 percent at 3:30 p.m. in New York after plunging 6.3 percent in August for its worst month since 2012. It has fallen 1.1 percent on average in the month of September going back to 1927, according to data compiled by Bloomberg.
Asian shares started Tuesday’s selloff after a gauge of Chinese manufacturing fell to a three-year low. European stocks followed after a reports pointed to weaker growth in the region, and the slump spread to the U.S. amid data showing the slowest expansion in manufacturing in two years. Treasuries and gold climbed while oil pulled back after a three-day rally sent it into a bull market. The yen strengthened the most among major currencies.
The International Monetary Fund on Tuesday joined private forecasters including Citigroup Inc. and Morgan Stanley in anticipating slower expansion as China’s growth weakens and Brazil’s economy shrinks.
The risk premium on the Markit CDX North American High Yield Index, a credit-default swaps benchmark tied to the debt of 100 speculative-grade companies, headed for the biggest jump in almost a month. The gauge rises when investor confidence deteriorates.
Trading in U.S. equities has been volatile. Last week alone, the S&P 500 plunged the most since 2011 to enter a correction before rallying more than 6 percent over two days for its best back-to-back gains since the beginning of the bull market in 2009. The Chicago Board Options Volatility Index jumped 10 percent Tuesday after rising posting its biggest monthly advance in data going back to 1990.
“The market is running around nervous, not sure what to pay attention to,” said Robert Pavlik, who helps oversee $9.1 billion as chief market strategist at Boston Private Wealth. “People are worried about China today but they’re going from one issue to the next issue. The market’s not necessarily trading on news. Everybody seems to be looking for an excuse.”
Stocks in emerging countries also picked up where they left off in August, sliding by 2.3 percent Tuesday. A slowdown in China has repercussions for countries from Brazil to Russia and South Africa, which rely on demand from the world’s second- largest economy for exports of goods. The prospects of the Federal Reserve raising interest rates as soon as this month is also weighing on sentiment.
The Fed is scrutinizing data to determine the timing and pace of its first interest-rate increase since 2006. Attention will focus this week on the government’s August jobs report, due Friday, as the last major data point before the Fed’s meeting on Sept. 16-17.
Boston Fed President Eric Rosengren said Tuesday uncertainty over inflation and global growth justifies a modest pace of interest-rate increases, regardless of when the central bank begins tightening.