(Bloomberg) -- U.S. stocks tumbled at the start of 2016, falling to their lowest levels since mid-October, as a rout in Chinese equities renewed concern that an economic slowdown there will damp global growth.

Investors returning to the market after the New Year’s holiday are facing a selloff that spread from China to Europe, and a reminder of the worries that dragged down stocks in August, sending the S&P 500 to its first correction in four years. Technology, banks and industrial companies in the gauge all fell more than 2%.

The S&P 500 fell 2.2% to 1,999.17 at 10:04 a.m. in New York, after dropping 0.9% Thursday to end 2015 with an annual decline for the first time since 2011. The Dow lost 401.66 points, or 2.3%, to 17,023.83. The Nasdaq dropped 2.7%.
“We’ve had a number of negatives out there in the U.S., and China is a reminder that there aren’t many things to [be] bullish about going into this year,” said Michael O’Rourke, chief market strategist at JonesTrading Institutional Services LLC in Greenwich, Connecticut. “The three catalysts to the bull market were economic recovery, earnings recovery and accommodative policy and while the economy has gotten better, we’ve lost the other two.”

Trading was halted in China after a 7% drop in the CSI 300 Index of large-capitalization companies listed in Shanghai and Shenzhen amid deteriorating manufacturing data. Chinese policy makers, who went to unprecedented lengths to prop up stock prices during a summer rout, are trying to prevent financial-market volatility from weighing on an economy set to grow at its weakest annual pace since 1990.

The S&P 500’s decline has it on track for the fourth-worst start to a year in data compiled by Bloomberg going back to 1927. The biggest rout to open a year was in 1932 when the index sank 6.9%. The other two were a 2.8% slide during the dot-com demise in 2001 and a 2% drop to open 1980. In those instances, the index averaged a full-year loss of 0.7%.

S&P Dow Jones Indices data indicate the first day of trading has no predictive power for the rest of the year. The index ends the year in the same direction it takes on the opening day 50.6% of the time, the data show. The first month of the year has proved more telling — the gauge’s return in January determines its direction for the year 72.4% of the time.
After scaling new peaks and enduring its worst selloff in four years, the main U.S. equity index ended 2015 0.7% lower. Investor sentiment wavered last year between optimism that the economy was strong enough to handle higher borrowing costs and concern that China’s slowdown will hurt global growth, which exacerbated weakness in commodity prices and raw-material stocks.

The beginning of 2015 was also rocky, with the benchmark index dropping 2.7% in its first three sessions, followed by a two-day, 3% rally before eventually finishing January down 3.1%.

Meanwhile, investment strategies premised on buying shares based on their momentum just posted the best year since 2007, which isn’t great news for bulls. Past instances when momentum stocks — defined as the ones showing the biggest gains in the last six to 12 months — won have occurred closer to the end of rallies than the beginning, signaling indiscriminate buying at a time when more traditional share drivers, such as earnings growth, are starting to wane.

Escalating tensions between Saudi Arabia and Iran are also adding to worries Monday, according to Robert W. Baird & Co.’s Patrick Spencer. “Middle Eastern concern and the escalation compounded by further issues in China are all adding to short- term weakness,” said Spencer, equities vice chairman at Baird in London. “The outlook still looks reasonable and I would take any weakness to selectively buy, especially in the consumer and housing market recovery area.”

Focus will turn toward a swath of economic reports this week, including data on factory activity, the monthly jobs report and minutes from the Fed’s meeting that ended with the first rate increase since 2006.

A gauge today showed manufacturing in the U.S. contracted in December at the fastest pace in more than six years as factories, hobbled by sluggish global growth, cut staff at the end of 2015. The Institute for Supply Management’s index declined to 48.2, the weakest since June 2009, from 48.6 a month earlier, according to the Tempe, Arizona-based group’s report. Readings lower than 50 indicate contraction. The median forecast in a Bloomberg survey of economists was 49.

With assistance from Joseph Ciolli.

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