China worries, sinking drugmakers slam stock market

NEW YORK – Ongoing worries about the health of the Chinese economy and another big sell-off in drugmakers pushed the stock market back toward its lowest level of the year.

Energy and raw material companies dropped on reports that industrial profits at Chinese companies fell sharply in August, heightening worries about a slowdown in the world’s second-biggest economy. Health care stocks fell sharply as drugmakers extended a decline that began last week as lawmakers stepped up pressure on the industry over its pricing policies.

Stocks have fallen sharply in August and September on concern that a slowdown in China is worse than previously thought and is spreading to other emerging market economies. The slowdown could start hurting U.S. companies that rely on overseas demand for a large portion of their profits.

“Whenever the market is down, the first place to look these days is China,” said John Manley, chief equity strategist at Wells Fargo Fund Management. “Right now, we need evidence that China is not slowing that much and that profits are still going to be OK.”

The Standard & Poor’s 500 index slipped 49.57 points, or 2.6 percent, to 1,881.77. The index is now 14 points above its lowest level of the year, set Aug. 25.

The Dow Jones industrial average lost 312.78 points, or 1.9 percent, to 16,001.89. The Nasdaq composite slumped 142.53 points, or 3 percent, to 4,543.97.

Health care stocks were another weak link for the market.

A sell-off in drugmakers extended into a second week. The Nasdaq Biotechnology index dropped 6 percent, its worst day in more than four years.

Congressional Democrats on Monday pressed a Republican committee chairman to force Valeant Pharmaceuticals, a Canadian drugmaker, to turn over documents tied to price hikes imposed for two heart drugs earlier this year. The company’s U.S.-listed stock plunged $32.97, or 17 percent, to $166.50.

The sector – a recent favorite of investors – slumped last week after Democratic presidential candidate Hillary Rodham Clinton announced a plan to tackle rising drug costs. The sector has plunged 27 percent since reaching a peak in July.

Monday’s slump put the S&P 500 index back in a “correction,” a Wall Street term meaning a drop of 10 percent or more from a recent peak. The index is down 11.7 percent from its record close of 2,130.82, set in May of this year.

Some analysts expressed surprise at the ferocity of Monday’s sell-off, given the relative strength of the U.S. economy. Hiring is coming back and the housing the market is recovering.

“The economy here is still improving. There’s no reason that this selling pressure should be as severe as it has been,” said Robert Pavlik chief market strategist at Boston Private Wealth.

Alcoa was among the stocks that bucked the trend on Monday and closed higher.

The metals maker gained after announcing that it will split into two independent companies. Its bauxite, aluminum and casting operations will be in one company and its engineering and transportation businesses will be in another. The company’s stock rose 52 cents, or 6 percent, to $9.59.

In addition to concerns about the outlook for growth in China, investors have also been worried about U.S. interest rates. Federal Reserve Bank of New York President William Dudley said in an interview with the Wall Street Journal on Monday that he expects policymakers will raise rates this year. The Fed has kept short-term rates close to zero for almost seven years to help the economy recover from the financial crisis.

In Europe, Volkswagen resumed its slide.

The carmaker’s stock fell 7 percent as German prosecutors opened an investigation against the company’s former CEO, Martin Winterkorn. The probe aims to determine who was responsible for selling vehicles with manipulated emissions data, prosecutors in Germany said in a statement.

The stocks of other European automakers, including BMW, Daimler and Fiat Chrysler also fell sharply.

U.S. government bond prices rose, pushing the yield on the 10-year Treasury note down to 2.10 percent from 2.16 percent on Friday. The euro was little changed from Friday at $1.1201 and the dollar fell 0.7 percent to 119.9 yen.

The price of oil fell sharply on concerns that weak global economic conditions would reduce demand for energy. U.S. crude fell $1.27 to close at $44.43 a barrel in New York. Brent Crude, a benchmark for international oils used by many U.S. refineries, fell $1.26 to close at $47.34 in London.

In other futures trading on the NYMEX:

– Wholesale gasoline fell 4.7 cents to close at $1.349 a gallon.

– Heating oil fell 4.5 cents to close at $1.477 a gallon.

– Natural gas fell 0.1 cent to close at $2.563 per 1,000 cubic feet.

Gold fell $13.90 to $1,131.70 an ounce. Silver dropped 57 cents to $14.54 an ounce and copper fell 3.2 cents or $2.25 a pound.