S&P 500 posts biggest monthly loss in more than 3 years

Adam Shell and William Cummings | USA TODAY

Show Caption Hide Caption Dow on pace for worst month in five-years Bloomberg's Matt Miller updates the latest markets news. He reports on "Bloomberg Markets."

U.S stocks tumbled and oil prices surged Monday as Wall Street closed out a volatile August with hefty losses that gave the S&P 500 its worst monthly performance since May 2012.

Uncertainty about the timing of Federal Reserve rate hikes and persistent fears about a China slowdown continue to weigh on financial markets after last week's wild ride.

The Standard & Poor's 500 index dropped 17 points, or 0.9%, to 1972, according to preliminary calculations. The broad-based index tumbled 6.3% for the month making August its worst month in more than 3 years, according to S&P Dow Jones Indices.

The Dow Jones industrial average fell 115 points, or 0.7%, to 16,5021. The blue-chip index dropped 1,162 points, or 6.6%, in August, its worst month since 2010, according to Bloomberg.

The Nasdaq composite index declined 51 points, or 1.1%, to 4777, putting its loss for August at 6.9%.

The losses were broad-based as nine out of the 10 S&P sectors fell. Energy stocks were the sole gainers as oil prices surged for a third straight day after the Organization of Petroleum Exporting Countries indicated they are prepared to discuss production levels. U.S. benchmark crude surged 8.8% to $49.20 a barrel on the New York Mercantile Exchange. Crude has jumped 27% in three days.

Despite the stock market's rebound from big losses last Monday and Tuesday and its ability to close higher last week, the general tone of Wall Street reports released heading into the new week is that the turbulent period for stocks may not yet be over.

"It’s too soon to give the 'all-clear' to buy without a ... multi-week period of stabilization," Oppenheimer's Ari Wald told clients in a note before the opening bell.

Over the weekend at the Fed’s annual gathering in Jackson Hole, Wyo., Federal Reserve vice chairman Stanley Fischer said there was a “pretty strong case” for raising rates at the U.S. central bank's September meeting, further spooking investors after a tumultuous couple of weeks on Wall Street. That message conflicted with New York Federal Reserve president William Dudley's comments last Wednesday which said the case for a September rate hike has become "less compelling" following the recent market turbulence sparked by worries about China's economy.

"Interest rate hike speculation will likely remain in the limelight, as the mid-September Fed meeting comes into focus," said Gina Martin Adams, equity strategist at Wells Fargo Securities.

Over the weekend, Fischer stressed that he was not necessarily saying what the U.S. central bank planned to do at its September meeting. Yet, his comments appear to have splashed some cold water on hopes the Chinese market woes and last week’s global volatility would convince the Fed to hold off on the hikes.

“The Fed is still at the drawing board with regards to the specifics of the timing of a rate hike this year. But to be sure conviction for a hike this year was not watered down,” said Mizuho Bank in a report. “What’s more, a rate hike sooner rather than later is preferred on forward-looking inflation.”

With the Fed basically saying that it will hike rates next month if economic data improves and will hold off if data come in weak and turbulence in China continues, Wall Street will be closely eyeing all incoming economic data this week. The most important release will be the August employment report, set for release Friday.

"We remain of the belief that the market will continue to be volatile until there is greater clarity about monetary policy in the U.S. and the prospects of economic growth in China," Jason Trennert of Strategas Research Partners told clients in a note.

The Shanghai Composite started off this week with another big drop, losing 2.8%. Japan’s Nikkei 225 fell 1.7% on disappointing factory output numbers for July and Hong Kong’s Hang Seng lost 0.6%.

European benchmarks were also in negative territory with France’s CAC-40 off 0.5%, while Germany’s DAX dropped 0.4%.

Contributing: The Associated Press