Fears that a slowdown by China’s economy will eventually ripple through the rest of the world were playing out on Tuesday, reflected in a sweeping global equity-market downturn.

The Dow Jones Industrial Average DJIA, +1.33% on Tuesday ended lower by more than 100 points, or 0.5%, but had been off by as many as 548 points earlier in the session, with the Nasdaq Composite Index COMP, +2.26% and the S&P 500 index SPX, +1.59% both suffering a bruising opening slide before paring losses ahead of the close.

And although U.S. stocks ended well off their worst levels on Tuesday, fears that China may prove the catalyst that ultimately upends the global economy are lingering. That sentiment comes after the Shanghai Composite SHCOMP, -0.11% finished down 2.3%, while the Shenzhen Composite Index 399106, -0.23% closed 1.9% lower, halting a two-day rally that had been underpinned by market-supportive comments from Chinese officials.

Overall, the Shanghai Composite has lost 27% of its value since hitting a peak on Jan. 24, while the small-capitalization focused Shenzhen has declined by 34% since its late-January apex, according to FactSet data. That means both benchmarks are deep in bear-market territory, defined as a drop of at least 20% from a recent peak.

Commodity weakness

Fawad Razaqzada, technical analyst at research and trading platform Forex.com, told MarketWatch that he already is seeing signs of contagion in the commodity complex from the second-largest economy in the world and a big importer of metals, crude oil and other raw materials.

“The ongoing weakness in the yuan USDCNY, means demand for dollar-denominated commodities from China has undoubtedly been affected. With the Chinese stock markets also falling, this has probably also reduced their purchasing power,” Razaqzada.

Indeed, high-grade copper US:HGZ8, widely used as an industrial metal in manufacturing buildings and electronics, at $2.758 a pound on Tuesday is down 16.5% on the year and about 1.7%, so far in October. The metal is on track to register losses in five of the past six months and seven of the past nine.

Because of its industrial use, the metal is often referenced as a leading economic indicator and recent declines have been attributed to signs of cracks in China’s economy, which market experts say have been amplified by Beijing's trade clash with the U.S.

Indeed, China’s gross domestic product grew 6.5% from a year earlier in the third quarter, down from 6.7% growth in the third quarter, representing China’s slowest pace of economic expansion in almost a decade.

A Tuesday research report from Capital Economics said worries about the U.S. economy and “to some extent in the past few days China” are proving contagious to the broader market.

On top of that, the CEO of industrial giant 3M Co. MMM, -0.09% on Tuesday said that signs of slowing are hurting its business. “We see other signs of slowing in China. The automotive build rates are down significantly and that has a knock-on effect,” 3M’s Michael Roman said on a conference call to discuss its third-quarter earnings.

Divergence

Divergence between the performance of U.S. stocks and rest of the world also has been cited as evidence to support the notion that China’s woes are infecting global markets outside of the U.S.

For example, the iShares MSCI ACWI ex US ETF ACWX, +0.24% , a popular fund used to invest in stocks outside the U.S., is down 11.5% so far in 2018, compared with a 2.5% gain for the S&P 500, even when factoring recent declines. A popular emerging-market oriented, exchange-traded fund, the iShares MSCI Emerging Markets ETF EEM, +0.09% , has lost nearly 16% in the first 10 months of the year.

Meanwhile, China has been readying a fresh round of monetary and fiscal stimulus to help support its economy and its stock market, with the government recently announcing plans for boosting bond financing for private firms and cutting taxes for households.

Cyclical underperformance

Those efforts come as the Beijing and the U.S. remain locked in a trade dispute that many analysts feel is reverberating through China and U.S. markets. Underperformance of cyclical sectors relative to their defensive peers around the world since global equities started to fall back last month likely reflects investor worries about the growth outlook for both China and the U.S., wrote economists at Capital Economics.

“And in light of our forecasts that China’s economy will continue to lose momentum, and that the U.S. economy will slow sharply in 2019, we expect them to continue to underperform,” they said, in a Tuesday note. “This would be consistent with what has happened in previous economic downturns.”