(Bloomberg) -- U.S. stocks tumbled to begin 2016, with the S&P 500 off to its worst start in 15 years as a rout in Chinese equities renewed concern that an economic slowdown there will damp global growth.
Client and other investors returning to the market after the New Year holiday faced a worldwide selloff sparked by weak factory data in China, while a reading that showed the fastest contraction in U.S. manufacturing in six years bolstered anxiety that slowing growth in the world's second-largest economy is spreading. A flareup in tension between Saudi Arabia and Iran added to the unease.
The S&P 500 fell 1.5% to 2,012.66 at 4 p.m. on Monday in New York, after sliding as much as 2.7% as equities pared losses in the final 30 minutes of trading. The Dow lost 276.09 points, or 1.6%, to 17,148.94. The Nasdaq dropped 2.1%. The Chicago Board Options Exchange Volatility Index jumped 14%, the most in three weeks. About 8.5 billion shares traded hands on U.S. exchanges, 21% above the three-month average.
"We've had a number of negatives out there in the U.S., and China is a reminder that there aren't many things to be bullish about going into this year," said Michael O'Rourke, chief market strategist at JonesTrading Institutional Services in Greenwich, Conn. "The three catalysts to the bull market were economic recovery, earnings recovery and accommodative policy, and while the economy has gotten better, we've lost the other two."
Trading was halted in China after a 7% drop in the CSI 300 Index of large-capitalization companies listed in Shanghai and Shenzhen amid deteriorating manufacturing data. Chinese policy makers, who went to unprecedented lengths to prop up stock prices during a summer rout, are trying to prevent financial-market volatility from weighing on economy set to grow at its weakest annual pace since 1990.
The S&P 500's decline was its sixth-worst start to a year in data compiled by Bloomberg going back to 1927. The biggest rout to open a year was in 1932 when the index sank 6.9%, followed by a 2.8% slide during the dot-com demise in 2001. In those two instances, the index averaged a full-year loss of 14%, though the five worst starts had an average annual gain of 5.1%.
S&P Dow Jones Indices data indicate the first day of trading has no predictive power for the rest of the year. The index ends the year in the same direction it takes on the opening day 50.6% of the time, the data show. The first month of the year has proved more telling -- the gauge's return in January determines its direction for the year 72.4% of the time.
After scaling new peaks and enduring its worst selloff in four years, the main U.S. equity index ended 2015 0.7% lower. Investor sentiment wavered last year between optimism that the economy was strong enough to handle higher borrowing costs and concern that China's slowdown will hurt global growth, which exacerbated weakness in commodity prices and raw-material stocks.
The beginning of 2015 was also rocky, with the benchmark index dropping 2.7% in its first three sessions, followed by a two-day, 3% rally before eventually finishing January down 3.1%.
Meanwhile, investment strategies premised on buying shares based on their momentum just posted the best year since 2007, which isn't great news for bulls. Past instances when momentum stocks -- defined as the ones showing the biggest gains in the last six to 12 months -- won have occurred closer to the end of rallies than the beginning, signaling indiscriminate buying at a time when more traditional share drivers such as earnings growth are starting to wane.
Escalating tensions between Saudi Arabia and Iran are also adding to worries Monday, according to Baird's Patrick Spencer. "Middle Eastern concern and the escalation compounded by further issues in China are all adding to short- term weakness," said Spencer, equities vice chairman at Baird in London. "The outlook still looks reasonable and I would take any weakness to selectively buy, especially in the consumer and housing market recovery area."
Focus will turn toward a swath of economic reports this week, including data on factory activity, the monthly jobs report and minutes from the Federal Reserve's meeting that ended with the first rate increase since 2006. A reading on Monday showed manufacturing in the U.S. contracted in December at the fastest pace since 2009 as factories, hobbled by sluggish global growth, cut staff at the end of 2015.
All of the S&P 500's main groups dropped on Monday, with financial, health-care and consumer discretionary shares down at least 1.7%. Microsoft, Google parent Alphabet and Facebook fell more than 1.2%. The Nasdaq Biotechnology Index sank 3.2%, the most in a month to weigh on health-care.
J.P. Morgan Chase and Wells Fargo paced the drop in the financial group, down at least 2.6% as 83 of 87 members fell. McGraw Hill Financial and Huntington Bancshares fell the most, losing more than 3.2%. An index tracking bank stocks slumped 2.6% to the lowest since Oct. 21, and traded with volume 58% above their 30- day average, according to data compiled by Bloomberg.
Several of 2015's biggest winners and losers reversed roles in the first session of the new year. Netflix and Amazon.com dropped more than 3.8%, among the benchmark's worst performers today after posting the strongest gains in 2015, up more than 117%. Chesapeake Energy and Consol Energy were the strongest gainers Monday, rising at least 8.4%, after leading declines last year.
Energy companies in the S&P 500 fell 0.2% Monday, the smallest decline among the main industries after posting the biggest drop last year, down nearly 24%. Southwestern Energy and Range Resources added more than 4.6%. Overshadowing those gains, Chevron and Phillips 66 lost at least 1.2%.
Among companies moving on corporate news, Baxalta jumped 5.5% to an all-time high. Bloomberg News reported that Shire is in advanced talks to acquire the drugmaker for a deal of about $32 billion in cash and stock, excluding debt.
Chipotle Mexican Grill dropped 6.5% to a more than two-year low after analysts predicted a tough 2016 for the restaurant chain. Chipotle's reputation was battered in recent months by an outbreak of E. coli that afflicted at least 53 people in nine states. That was followed by a norovirus contagion at a Boston location that sickened more than 140 college students.
With assistance from Joseph Ciolli and Camila Russo.
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