(Bloomberg) -- Turbulence in financial markets gathered momentum amid intensifying concern over slowing global growth, pushing the Dow Jones Industrial Average into a correction and giving other stock gauges their worst losses since 2011.
More than $3.3 trillion has been erased from the value of global equities after Chinas decision to devalue its currency spurred a wave of selling across emerging markets. The worries over slower economic growth come as a strong dollar and plunge in oil prices take a toll on corporate earnings at the same time the Federal Reserve is contemplating the first boost to interest rates since 2006.
For much of this year, the glass was considered half full and now people the last 48 hours are thinking its looking more empty, George Hashbarger, who oversees $224 million as chief executive officer and portfolio manager at Knoxville, Tennessee- based Quintium Advisors LLC, said by phone. This is more like October than it is buy-the-dip.
Volatility surged as Standard & Poors 500 Index capped the worst week in three years while Europe entered a correction and stocks from Hong Kong to Indonesia tumbled into bear markets. Junk bond yields rose to the highest since October 2012 and U.S. Treasuries had the largest weekly gain in five months. Oil sank below $40 a barrel for the first time since 2009 and was set for its longest losing streak since 1986.
The S&P 500 dropped 3.2%, the most since November 2011, to below 2,000. The index is down more than 7% from a record after sinking below a trading range that has supported it for most of the year. The Dow Jones Industrial Average fell more than 500 points, as is down 10% from its record high in May.
FAB FIVE
Investors are selling the biggest winners of 2015. Companies that have come to be known as the Fab Five -- Netflix Inc., Facebook Inc., Amazon.com Inc., Google Inc. and Apple Inc.--have seen $97 billion in market value erased over two days. Losses have pushed the Nasdaq 100 Index down 7%, the biggest two-day decline since 2008. Apple entered a bear market, dropping 20% from a February high.
To Apple and energy shares already snared in a bear market, add semiconductor stocks. Meanwhile, the Dow joins biotechnology, small-caps, media, transportation and commodity companies in a correction.
The VIX, the benchmark gauge of U.S. equity options, more than doubled during the week for its largest gain ever amid demand for contracts to protect against further losses. It is at the highest level since 2011.
Before this week, U.S. equities had held their ground throughout 2015. The S&P 500 had stayed within a range roughly tracking its 50-, 100- and 200-day moving averages, boosted by signs the economy is recovering and support from central banks. The benchmark index hadnt had a decline of more than 5% all year.
CHINA DATA
The selloff simply means that all areas of the market are in gear now, and unfortunately its on the downside, Bruce Bittles, chief investment strategist at Milwaukee-based Robert W. Baird & Co., which oversees $110 billion, said in an interview on Bloomberg Televisions Market Makers with Cory Johnson and Olivia Sterns. Investors have to be much more careful now with that technical development.
The weeks retreat from the riskiest assets picked up speed as data showing a gauge of China manufacturing at the lowest level in more than six years highlighted the challenges facing the nations economy.
EMERGING MARKETS
The MSCI All-Country World Index tumbled 2.7% to the lowest since October. The MSCI Emerging Markets Index slid 2.2%, with the Malaysian ringgit and South Korean won leading currencies lower. Investors have sought safety in the yen, which strengthened for a third day against the dollar. Gold also gained.
This weeks selloff started from the yuans devaluation, which generated speculation about the true state of Chinas economy, Hertta Alava, who helps oversee the equivalent of $395 million as the head of emerging markets at FIM Asset Management Ltd. in Helsinki, said by e-mail. Chinas PMI was weak, so it is just adding fuel to this negativity.
Hong Kongs Hang Seng Index dropped 1.3%, taking declines since an April high beyond 20%. The Shanghai Composite Index slumped 4.3%, bringing the weeks loss to more than 10% and coming within one point of erasing all gains since the government began efforts to prop up the market in July.
The whole worlds looking a little bit sad, said Mark Lister, head of private wealth research at Craigs Investment Partners Ltd. in Wellington, which manages about $7.2 billion. China still looks really worrying on a number of fronts.
EUROPE CORRECTION
The Stoxx Europe 600 Index lost 3.3%, as the selloff engulfed all western European markets and industries in the benchmark gauge. The index had its worst weekly loss since 2011, down 6.5%. It is down 13% from an April high, entering a correction.
Trading patterns show the declines are poised to slow. The 14-day relative strength index on the MSCI All-Country World Index closed below 30 on Thursday, a level that signals an asset is poised to rebound, according to some technical analysts.
Amid the selloff, the S&P 500 is trading at 17.5 times earnings. Thats down from 18.9 times a month ago, which was near a five-year high, though still exceeds the five-year historical average of 16.1 times profit.
U.S. Treasuries had their biggest weekly gain in five months as demand for fixed income soared. Ten-year notes drew support from signs the Federal Reserve will keep interest rates close to zero for longer, and from a decline in oil prices that helped push a gauge of inflation expectations toward its lowest since 2010.
Futures show that traders see a 34% chance the Fed will raise interest rates at its September meeting, down from a 48% probability at the end of last week.
SOVEREIGN DEBT
Government debt from Australia to Britain also gained this week, driving the average yield on developed-nation bonds to a three-month low.
Yields on junk bonds rose to an average 7.39%, the highest since October 2012, according to Bank of America Merrill Lynch bond indexes. The premium investors demand to hold junk bonds over investment-grade debt climbed to the most since December, the indexes show.
Oil briefly plunged below $40 a barrel in New York for the first time in more than six years on signs the supply glut will be prolonged. The U.S. pumped crude in July at the fastest pace for the month since at least 1920, the American Petroleum Institute reported Thursday. Prices dropped for an eighth week, the longest streak since 1986.
Copper extended its longest run of weekly declines since January, with aluminum, lead, nickel and zinc also dropping.
--With assistance from Cecile Vannucci, Lynn Thomasson, Neil Denslow, David Goodman, Lyubov Pronina and Stephen Kirkland in London, Adam Haigh in Sydney, Nick Gentle in Hong Kong and Emma OBrien in Wellington.
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