NEW YORK/LONDON – More signs of distress in China’s economy and rising bond yields led to a broad sell-off in stocks Monday, leaving key market indexes down more than 5 percent from their record highs last month.
It was the first 5 percent decline — referred to on Wall Street as a “pullback” — since November.
Pullbacks that occur during bull markets tend to be “nasty and brutish” — but short, said John Manley, chief equity strategist at Wells Fargo Funds Management. He said it’s common to get declines of 3 percent to 7 percent “as the market restores a reverence to risk to the investing public.”
U.S. trading started with a slump Monday. The market recovered much of its loss, then fell back again. By the close of trading the big stock indexes were clinging to modest gains for the second quarter, which ends Friday.
Before Wall Street opened for trading Monday, Asian markets were already sharply lower, led by a 5 percent plunge in China’s Shanghai Composite Index. That was the index’s biggest loss in four years. The decline was prompted by a government crackdown on off-balance sheet lending, which made investors worry about China’s economic growth. The selling spread to Europe, where France’s benchmark stock index fell 1.7 percent, Germany’s 1.2 percent and Britain’s FTSE 1.4 percent.
U.S. traders took one look at that and started dumping stocks. The Dow Jones industrial average fell as much as 248 points in the first hour of trading. The yield on the 10-year Treasury note spiked to its highest in almost two years as the sell-off brought down prices of U.S. government debt. Gold and other metals also fell.
The Tyler group, China slump, higher bond yields weigh on wo