Stocks Kick Off 2016 With Early Sell-Off - U.S. Commentary

(RTTNews) - On the heels of a global sell-off, stocks have shown a substantial move to the downside to start the first trading day of the New Year. The major averages have fallen sharply in early trading, adding to the losses posted in the final week of 2015.

Currently, the major averages are just off their worst levels of the day. The Dow is down 386.62 points or 2.2 percent at 17,038.41, the Nasdaq is down 142.45 points or 2.8 percent at 4,864.97 and the S&P 500 is down 44.84 points or 2.2 percent at 1,999.10.

The early weakness on Wall Street comes following a steep drop by Chinese stocks, as China's Shanghai Composite Index plummeted by 6.9 percent.

The steep drop by the index triggered a trading halt on the Chinese markets, with authorities utilizing new market circuit breakers for the first time.

Disappointing manufacturing data contributed to the weakness among Chinese stocks and led to worries about the global economy.

A report released by Markit and Caixin showed that their index of Chinese manufacturing activity fell to 48.2 in December from 48.6 in November. The reading below 50 indicates a continued contraction.

Negative sentiment has also been generated by the release of disappointing U.S. data, including a report from the Institute for Supply Management showing a continued contraction in manufacturing activity.

The ISM said its purchasing managers index edged down to 48.2 in December from 48.6 in November, with a reading below 50 indicating a contraction in manufacturing activity.

The modest drop came as a surprise to economists, as the consensus estimate called for the index to inch up to a reading of 49.2.

With the unexpected decrease, the manufacturing index dropped to its lowest level since hitting 45.8 in June of 2009.

A separate report from the Commerce Department showed an unexpected decrease in construction spending in the month of November.

Most of the major sectors have come under considerable pressure on the day, reflecting broad based weakness on Wall Street.

Internet stocks are posting particularly steep losses, resulting in a 3.9 percent drop by the Dow Jones Internet Index. Netflix (NFLX) has helped to lead the sector lower after Baird downgraded the stock to Neutral from Outperform.

Airline, financial, software, and biotechnology stocks are also seeing significant weakness, while gold stocks are among the few groups bucking the downtrend.

In overseas trading, stock markets across the Asia-Pacific region saw substantial weakness during trading on Monday. Japan's Nikkei 225 Index plunged by 3.1 percent, while Hong Kong's Hang Seng Index tumbled by 2.7 percent.

The major European markets have also moved sharply lower on the day. While the German DAX Index has slumped by 4.2 percent, the French CAC 40 Index and the U.K.'s FTSE 100 Index are down by 2.7 percent and 2.2 percent, respectively.

In the bond market, treasuries have moved to the upside amid the sell-off on Wall Street. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 5.1 basis points at 2.218 percent.