U.S. stocks kicked off September with heavy losses on the heels of the worst month for Wall Street since 2012 amid mounting concerns over the strength of the global economy.
The Dow Jones Industrial Average (^DJI) dropped 469.7 points, or 2.8%, to 16058.3, the S&P 500 (^GSPC) fell 58.3 points, or 3.8%, to 1913.8 and the Nasdaq Composite (^IXIC) tumbled 140.4 points, or 2.9%, to 4636.1.
The broad S&P 500 tumbled 6.26% in August, its worst month since May 2012. The rout erased some $5 trillion in global equity market value as traders ditched stocks.
On Tuesday, traders cited swelling anxiety over the state of two of the world's biggest economies as reasons for steep losses.
The Institute for Supply Management's manufacturing PMI dropped to 51.1 in August from 52.7 the month prior, compared to expectations of a much shallower drop to 52.6. The reading indicates U.S. factory growth slowed down in August to the lowest level since August 2013.
Michael Montgomery, U.S. economist at IHS Global Insight, reckons the rest of the year could be a "bumpy ride" for American manufacturers. However, Montgomery notes factory activity has "stalled," and probably won't deteriorate or improve much before next year.
Meanwhile, China's official PMI reading suggests the manufacturing sector in the world's second-biggest economy contracted at the swiftest pace since August 2012 last month. Separately, the Caixin PMI gauge for August pointed to the heaviest drop in factory activity in more than six years.
"Another day, another sign of weakness from the Chinese economy," wrote Joshua Mahony, a market analyst at London-based IG, in a note to clients, adding, "the importance of today's announcement is that the slowdown is hitting the larger state-backed firms who typically take longer to feel the pain."
The gloomy data out of China ignited a selloff in Asia, where the Shanghai Composite (000001.SS) dropped 1.2%. The Japanese Nikkei 225 (^N225) tumbled 3.8%, while the MSCI's index of Asia-Pacific performance excluding Japan dipped 1.9%.
The selling ricocheted into Europe, with the Euro Stoxx 50, a measure of large-capitalization European stocks, sinking 3.2%. Benchmark indexes in Germany and France were both down more than 2%, while the UK's FTSE 100 (^FTSE) plummeted more than 3%.
Commodities took a beating as well. U.S. crude oil prices (CLV15.NYM) collapsed 8.3% to $45.12 a barrel, extending 2015 losses to 13.3%. Wholesale New York Harbor gasoline prices tumbled 9 cents, or 5.1%, to $1.41 a gallon.
In metals, copper, seen as an economic bellwether, melted by 1%, to $2.31 a pound. Gold (GCZ15.CMX) drifted slightly higher to $1,138.40 a troy ounce.
Digging into U.S. markets, every major S&P 500 sector was in the red. The worst performers were energy, financials, materials and industrials -- all segments that tend to be linked closely to economic performance. Consumer staples, health-care and utilities, seen as defensive plays, avoided the worst selling.
Traders also took shelter in U.S. Treasury bonds. The yield on the benchmark 10-year Treasury note fell 0.028 percentage point to 2.172% as traders bid-up the asset. Bond yields move in the opposite direction of prices, so as traders buy, the yield falls.
The CBOE's VIX, sometimes called Wall Street's fear gauge, jumped 11.3%, adding to a year-to-date surge of close to 64.7%.
Eyes on the Fed
As the September meeting of the Federal Open Market Committee looms, investors have been paying ever-closer attention to comments by key Federal Reserve officials. On Tuesday, Boston Fed chief Eric Rosengren noted in a speech in New York that while the labor market improved enough to satisfy policymakers, data have not "been as clear-cut" on whether the rate of inflation will move up to the Fed's 2% target in a "reasonable time frame."
Rosengren, who is currently a non-voting alternate on the FOMC, said slowing in foreign economies, stock-market volatility and sliding commodity prices could keep the U.S. economy from growing quickly enough to boost the pace of inflation.
Over the weekend, vice chair Stanley Fischer said there is "good reason to believe" inflation will indeed move higher, and that the Fed needn't wait for inflation to hit 2% in order for the Fed to hike rates for the first time in nearly a decade.
Fed funds futures pointed to an implied probability of about 32% that the Fed will boost rates in September, according to data from the CME Group. Meanwhile, a recent poll by Bloomberg indicated Wall Street economists were essentially evenly split on whether to expect a September liftoff.