Stocks plummet on 1st trading day of 2016

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NEW YORK — Talk about a scary start to 2016.

Fears of a crash landing in China’s economy sent stocks diving around the world on Monday, the first trading day of the year. The global selloff was caused by a new report that showed China’s manufacturing sector contracted at the end of 2015. Stocks in China fell so badly that trading was halted for the first time ever.

The Dow declined 400 points, while the S&P 500 lost 2.2% and the Nasdaq dropped 2.8%.

“The first session of 2016 yields a bloodbath stretching from Asia to Europe to New York,” Bespoke Investment Group wrote in a client note.

The retreat comes after the S&P 500 fell 0.7% in 2014, its worst year since the 2008 financial crisis.

Monday’s wave of selling began in Asia. Trading in China was stopped prematurely after newly-installed circuit breakers were used for the first time ever. The breakers are a kind of emergency brake to halt trading on the main exchanges.

The benchmark Shanghai Composite plummeted nearly 7%. The Shenzhen Composite, often compared to America’s Nasdaq index because it has more tech companies, nosedived more than 8%.

The latest trigger was a new manufacturing survey by Caixin that fell to 48.2 in December following two months of stabilization. It marks the 10th month in a row of sub-50 readings, which indicate deceleration.

Even though the manufacturing report was disappointing, it’s just the latest sign of a slowdown in China. Analysts said selling in Chinese markets was also driven by other factors, including the scheduled lifting of bans on IPOs and sales by larger investors.

“With headwinds both domestic and external, investors feared a hard landing may be inevitable and rushed to the exits,” Emma Dinsmore, CEO of R-Squared Macro Management, wrote in a client note.

U.S. stocks hit session lows following fresh evidence of trouble in the American manufacturing sector. The ISM manufacturing index fell to 48.2 in December, the lowest reading since June 2009 when the Great Recession ended. Manufacturing continues to be hurt by the strong U.S. dollar, which makes American goods more expensive for overseas buyers.

Global markets are also growing nervous over the dramatic increase in tensions between Saudi Arabia and Iran, the big oil-producing power players in the Middle East.

Saudi Arabia cut diplomatic ties with Iran after its embassy in Tehran was attacked. The violence follows Saudi Arabia’s execution of a prominent Shiite cleric.

The Middle East tensions is already causing turbulence in the oil markets. Crude oil prices have been extremely volatile, soaring 3% and climbing back above $38 a barrel.

The rough start to 2016 could be a bad omen for Wall Street, which has an old saying: “As January goes, so goes the year.”

U.S. stocks have finished the year in the same direction as January 72% of the time, according to Howard Silverblatt of S&P Dow Jones Indexes.

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