Benchmarks suffered a rout on Friday following concerns about the state of China’s economy. China’s manufacturing activity plunged to a six-and-a half year low in August. Friday’s heavy selling pushed the Dow into the correction territory. Additionally, the blue-chip index and the S&P 500 posted their biggest weekly declines since Sep 2011. The Nasdaq recorded its steepest weekly drop since Aug 2011.

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The Dow Jones Industrial Average (DJI) slumped 3.1% or 530.94 points to close at 16,459.75. The Standard & Poor’s 500 (S&P 500) nosedived 3.2% to 1,970.89. The tech-laden Nasdaq Composite Index closed at 4706.04, plunging 3.5%. The fear-gauge CBOE Volatility Index (VIX) skyrocketed 46.5% to close at 28.03. A total of about 10.6 billion shares were traded on Friday, higher than the month-to-date average of 6.75 billion. Decliners outpaced advancing stocks on the NYSE. For 84% stocks that declined, 15% advanced.
 
The Dow tanked 10.1% from its record closing level in May, which eventually sent the blue-chip index into correction territory. A drop of 10% or higher than the peak achieved that year, generally indicates a correction. The index had last witnessed a correction in 2011. The S&P 500 also fell below the 2,000 level for the first time since February. All the three major indexes remained below their 200-day moving averages on Friday. Meanwhile, the VIX touched its highest level on Friday since Oct 2014. Last week, the index also posted its highest ever weekly percentage gain.
 
The market rout was a result of discouraging manufacturing data from China. The preliminary Caixin China Manufacturing Purchasing Managers’ Index came in at 47.1 in August, a 77-month low. Last month, the final reading was at 47.8. Any reading below 50 indicates contraction.
 
The decline in manufacturing activity came in despite Beijing’s move to devalue its currency to boost its export oriented companies. The Shanghai Composite Index dropped 4.3% to close at 3,507.74 on Friday, while the smaller Shenzhen Composite fell 5.4% to 2,039.40.
 
Plunge in oil prices also had a negative impact on the broader markets. Price of WTI crude oil declined 2.2% to $40.45 per barrel on Friday. WTI crude oil also registered its eighth straight weekly loss, its longest weekly losing streak since 1986. Additionally, the Brent crude oil declined 2.6% to $45.46 per barrel. Oil prices took a beating after Baker Hughes Incorporated (BHI) reported that oil rig counts increased to 674 as of Aug 21. Dismal manufacturing data from China along with continuous supply glut also dragged oil prices down.
 
Energy shares fell due to drop in oil prices. The Energy Select Sector SPDR (XLE) declined 3.5%. Dow components Exxon Mobil Corporation (XOM) and Chevron Corporation (CVX) dropped 3.3% and 4.4%, respectively. Other key stocks from the energy sector including Schlumberger Limited (SLB), ConocoPhillips (COP) and Transocean Ltd (RIG) decreased 2.4%, 3.4% and 2.4%, respectively.
 
Separately, the Technology Select Sector SPDR (XLK) declined 3.8% and was the biggest loser among the S&P 500 sectors. Key holdings from the sector including Apple Inc. (AAPL), Microsoft Corporation (MSFT), AT&T Inc. (T), Google Inc (GOOGL) and International Business Machines Corporation (IBM) decreased 6.1%, 5.7%, 1.7%, 5.2% and 2.5%, respectively. Overall, all 10 sectors of the S&P 500 ended in the red.
 
For the week, the S&P 500, the Dow and the Nasdaq declined 5.7%, 5.8% and 6.7%, respectively. Benchmarks slumped on concerns that a weak Chinese economy would result in a global slowdown. Continuing slump in oil prices also dampened investor sentiment. Separately, disappointing results from Wal-Mart Stores Inc. (WMT) had a negative impact on the Dow.
 
Meanwhile, uncertainty about the timing of a Federal Reserve rate hike was another major cause of downfall. Minutes of the Federal Open Market Committee meeting held on Jul 28 and 29 revealed that the majority of policymakers “judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point.”

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