Tokyo markets sharply down amid global worries

Adam Shell | USA TODAY

Show Caption Hide Caption 5 tips to weather the market storm As an investor it’s hard not to panic as stocks continue to plunge. Adam Shell of USA TODAY with five tips on keeping your cool.

NEW YORK — The global financial turmoil continued Tuesday as Tokyo financial markets opened sharply down.

The Nikkei Stock Average dropped 369 points at the opening Tuesday to 18,171, while the broader Topix fell 29 points to 1,451. Each were down about two percent.

That followed Monday’s continued downdraft on Wall Street as the Dow Jones industrial average – which was briefly down more than 1,000 points -- finished with its second drop of more than 500 points in as many days and the broader Standard & Poor's 500-stock index tumbled into official correction mode for the first time since 2011.

The selling spree on Wall Street, which has been driven by a global growth scare sparked by fears of a severe economic slowdown in China, has now infected every corner of the U.S. stock market. The Dow, small-company Russell 2000, large-company S&P 500 and tech-dominated Nasdaq composite are all down more than 10% from their record peaks from earlier this year and in full-fledged corrections.

The turbulence has Wall Street debating whether it is just a short-term correction that has created pockets of value in what had been an overpriced market or something worse. Traders are also wondering whether the China-inspired global market dive could cause the Federal Reserve to delay its first interest rate hike in more than a decade. Barclays, for example, on Monday pushed back its rate-hike timetable from September to March 2016.

In volatile trading Monday, the Dow initially plunged as much as 1,089 points in early trading before almost clawing back to even, only to succumb to a late-day swoon. At its low point, the Dow was in danger of suffering its worst one-day point loss on record -- a 777.68 drop on Sept. 29, 2008. The Dow is now down 13.3% from its high and down nearly 11% this year.

Wall Street warning: look out below U.S. stocks suffered its worst week since 2011 last week. Now what happens? Adam Shell reports.

Surprisingly, of the more than a dozen stock market strategists and money managers that were asked by USA TODAY if the current selloff will morph into a full-fledged bear market, or 20% or worse drop, all but one said no.

"No need to panic," says Ann Miletti, a senior portfolio manager at Wells Fargo Asset Management. "We haven't had a 10%-plus correction in a very long time. Prices were creeping up to lofty levels. I think this is a reset to get us back to a more neutral position." Other Wall Street pros say China's slowdown is unlikely to cause a U.S. recession, which normally is one pre-requisite for a bear market. The selloff has also made stock prices less expensive relative to their earnings estimates, pros say.

Axel Merk, manager of the Merk Funds, disagrees. Asked if a bear market has started, he responded with a simple, "yes."

The Standard & Poor's 500 index was down 77.68 points, or 3.9%, to 1893.21 as it dipped into correction territory — which is defined as a drop of 10% or more. The Nasdaq composite index fell 179.79 points, or 3.8%, to 4526.25. The Dow is now down 13.3% from its high. The S&P 500 is off 11.2%, the Nasdaq is 13.3% below its closing peak and the Russell 200 is down 14.2% from its record.

The Dow's midday reversal wasn't totally shocking, given how far and how fast the blue-chip gauge fell minutes after the opening bell, says David Kotok, chief investment officer at Cumberland Advisors.

"The 1,000-point Dow down opening was an extreme," Kotok said Monday morning. "So a rebound was in the cards and when Europe stabilized, (the Dow) followed. "

Still, Kotok was correct when he added that he wasn't sure the worst of the recent corrective price action on Wall Street is over: "We do not know how solid this reversal is," Kotok told USA Today. "At this moment of the day I am still skeptical."



Most are still in the correction camp.

"We went three years, two months and 21 days without a 10% correction in the (S&P 500)," says Don Luskin, market strategist at TrendMacro. "It was overdue. That doesn't make it a bear market."

Stocks remain volatile as market anxiety is on the rise after a big sell-off in China overnight, where the Shanghai composite index shed 8.5%, its biggest one-day decline since 2007 — and Chinese media were dubbing the selloff "Black Monday." The global stock rout then moved to Europe where major indexes there are off roughly 5%.

"Bad break," is the way Edward Yardeni, chief investment strategist at Yardeni Research, described the global tumult in stock markets around the globe.

"It's a really cruel summer," Savita Subramanian, equity and quant strategist at Bank of America Merrill Lynch told clients in a report before the opening bell. "Call it derisking, a flight to quality, a momentum meltdown, or the first signs of a global recession," but the fact is the past week saw the first pullback of greater than 5% since last October and the worst week since September 2011, she added.

The massive selloff, which kicked into high gear last week when the Dow tumbled more than 1,000 points and sank into official correction territory. Wall Street is still trying to gauge what will stop the landslide and stabilize the battered market, how bad the ultimate decline will be, and when it's safe to dive back into the market and seek out battered stocks.

The sell-off has been driven by growing fears that China's economy, the world's second-biggest and once the engine of world growth, is slowing more than many investors had thought, raising fears that a global economic relapse will ensue, hurting corporate profits for companies in the U.S. and the rest of the globe.

Yardeni sums up the big question facing investors: "Is the latest panic attack likely to be followed by yet another relief rally, or was last week's stock market rout the beginning of a bear market?" (A drop of 20% or more.)

The small-company Russell 2000 also dipped into correction territory along with the Dow last week.