Global Sell-off Affects Stocks

Both stocks and commodities spent the entire session trading with considerable weakness as a broad-based selling effort took hold following a steep sell-off in China's Shanghai Composite Index. What's more, participants showed conviction by driving up trading volume. The Shanghai Composite dropped 6.7% on Monday to hit a three-month closing low and log its second worst monthly performance in 15 years amid valuation concerns and fears that tighter lending in China will impede the flow of investment funds. Investors and traders responded to the selling effort by sending many of the major global averages lower. In turn, the Dow Jones World Index lost 0.8%.

The major US indices managed to trim some of their losses into the close, though. The late lift came as consumer staples stocks garnered enough support to finish with a 0.3% gain, the only one seen among the major sectors in the S&P 500. Health care stocks finished just 0.2% lower and financials limited their loss to 0.4% after being down nearly 2% in the early going. The financial sector's rebound came amid buying in diversified bank stocks (+0.8%), even though Reuters reported that a highly regarded analyst expects U.S. bank earnings to remain dismal this year. However, the report indicated that regional banks (-0.8%) would be the ones to continue booking losses into 2010.

ISM manufacturing data for August, construction spending data for July, and pending home sales data for July are likely to provide participants with direction. This week, vehicle sales data are also expected to be released tomorrow, although Ford (F 7.60 -0.13) already stated that its U.S. auto sales for August were up year-over-year earlier. The specific number of sales has yet to be released, but many believe that the results were driven by the one-time incentives of the Cash for Clunkers program.

Trading volume climbed above its 50-day moving average by coming in near 1.4 billion shares on the NYSE. That's the first non options-expiration session in which trading volume surpassed the moving average mark since early August. Dow -0.5%, Nasdaq -1.0%, S&P 500 -0.8%, Nasdaq 100 -1.1%, S&P 400 -1.3%, Russell 2000 -1.3%. This is the first hint of heavier distribution in the market . Volume will pick up substantially after Labor day when many traders will return from vacation and help define the tone for the market . September and October historically have always been feared as a seasonally difficult time for the markets and we will have to see if this plays out again.