(NEW YORK) The Dow Jones Industrial Average ended August with the steepest monthly loss in more than five years, while the benchmark S&P 500 and the Nasdaq Composite recorded the largest monthly declines since May 2012.
Trading on Wall Street was volatile Monday, while the implied volatility on the S&P 500, as measured by the CBOE Volatility index rose 9% to above 28.
Surging oil prices lifted energy stocks on Monday, but markets overall were weighed down by continued worries about China’s slowing economy and the uncertainty over the timing of a rate increase by the Federal Reserve. Fed policy makers have left the option of a September rate increase wide open.
The Dow Jones Industrial Average DJIA, -0.69% lost 114.98 points, or 0.7%, to finish at 16,528.03. That left the index with a 6.6% monthly loss, the largest percentage decline since May 2010.
The S&P 500 SPX, -0.84% closed 16.69 points, or 0.8% lower at 1,972.18, recording a 6.3% drop over the month, the steepest since May 2012. The Nasdaq Composite COMP, -1.07% ended the day down 51.82 points, or 1.1% at 4,776.51 and fell 6.9% over the month.
“Markets just don’t go into a V-shaped recovery after such violent and drastic drawdowns,” said Bruce Bittles, chief investment strategist at RW Baird & Co., referring to a 12% drop in the S&P 500 from its May 21 peak.
Monday’s slump followed declines in global equity markets. The Shanghai Composite slid 12.5% during August, and lost more ground on Monday. Stocks were hit by a report in the Financial Times that the Chinese government will no longer make large stock purchases to prop up the markets.
Read: Goldman slashes China’s economic outlook
According to Sam Stovall, U.S. equity strategist at S&P Capital IQ, the selloff may have further to run.
In a note to clients Stovall wrote that “in the 11 times that the S&P 500 fell by more than 5% in August, it declined 80% of the time in September and fell an average of nearly 4%,” implying that this correction probably has further to go.
Meanwhile, the weekend economic symposium in Jackson Hole, Wyo., sponsored by the Federal Reserve Bank of Kansas City, only “increased the level of uncertainty” over the next move in U.S. interest rates, said Nour Al-Hammoury, chief market strategist at ADS Securities, in a note. “The markets are waking up to the reality that there is no clear direction being set by the bankers or the Fed.”
China and a potential U.S. rate hike loom large over markets
Nonetheless, Goldman Sachs is sticking to its year-end 2015 S&P target of 2,100, which reflects upside of 6% from here, David Kostin, its chief U.S. equity strategist, said in a note on Monday. “Continued positive macro data will be essential if our forecast is to be realized,” he said.
Kostin said a risk to that forecast would be negative earnings pre-announcements during the last two weeks of September, ahead of the third-quarter reporting season.
Read: Jobs report could prevent rate increase—but unlikely to ensure one
In economic news, the Chicago PMI, or business barometer index, fell slightly in August but showed that the economy in the Midwest continued to grow at a moderate pace toward the end of summer.
Stocks to watch: Energy stocks were among the biggest gainers on the S&P 500. CONSOL Energy Inc. CNX, +5.84% and Newfield Exploration Company NFX, +5.41% rallied 5.8% and 5.4% respectively.
Staples Inc. SPLS, +3.35% and Office Depot ODP, +1.41% said late Friday they will delay the closing of their merger to provide the Federal Trade Commission with more information on the deal. Shares in Staples rose 3.4%.
Twitter Inc.’s stock TWTR, +3.58% jumped 3.6% after the social-networking company was upgraded at SunTrust Robinson Humphrey. The firm cited a series of potential positive catalysts and a “washed out” valuation.
Other markets: Japan’s Nikkei 225 index NIK, -1.28% dropped 1.3%, and lost 8.2% for the month of August. The Europe Stoxx 600 index SXXP, -0.13% closed slightly lower, down 0.1%, but registered its steepest monthly decline in four years.
Crude for October delivery CLV5, +6.41% reversed earlier losses and surged 8.8%, settling at $49.20 a barrel, after data showed declining U.S. oil output.
The dollar DXY, -0.01% was marginally weaker across major currencies, while gold prices GCZ5, -0.03% settled 0.1% lower at 1,132.50 an ounce.