U.S. stocks closed lower on Monday under pressure from an overnight plunge in the Shanghai Composite and a continued decline in commodities, amid a lackluster earnings season. (Tweet This)
"The fear factor of China is very much alive in the market. That's nearing us to some technical support levels," said Peter Cardillo, chief market economist at Rockwell Global Capital. "Slow growth out of China just complicates the oil picture."
Stocks came off session lows in the close. The S&P 500 dipped below its 200-day moving average of 2,064.14 and closed a few points above it. The energy sector was the worst performer in the S&P 500 as oil extended losses to trade below $48 a barrel.
The Dow Jones industrial average closed about 127 points lower to its lowest level since February 2. Earlier, the index fell more than 150 points. The Nasdaq Composite ended nearly 1 percent lower.
"I think it's taking money off the table, waiting to see what happens in China—some clarity," said Phil Quartuccio, CEO of Illustro Trading.
Mainland Chinese stocks extended Friday's losses, with the Shanghai Composite dropping nearly 8.5 percent for its largest one-day loss since 2007. The Hang Seng closed about 3 percent lower.
The China Securities Regulatory Commission said late Monday night that the local government will increase purchases of stocks in an effort to keep the equity market up.
Stocks around the world closed lower on Friday as weak PMI data in China and the euro zone increased global growth concerns.
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"Coming into the market you got this great sense that we can't avoid what's happening in the global-macro," said Art Hogan, chief market strategist at Wunderlich Securities. "We just went through a week (in which) 75 percent of S&P companies beat estimates and you would never realize that by the way the market (reacted). You got a week characterized by lackluster revenue growth."
The Thomson Reuters CRB commodities index on Monday hit its lowest level in six years. Copper futures fell more than 1.5 percent and U.S. oil futures were more than 2 percent lower near $47 a barrel. However, gold prices gained to hold above 5-1/2 year lows.
Crude oil futures settled down 75 cents at $47.39 a barrel, the lowest level since March 20. Gold futures ended up $10.90 at $1,096.40 an ounce.
The U.S. dollar fell nearly 1 percent against major world currencies, with the euro briefly creeping above $1.11 and the yen at 123.2 yen against the greenback.
Treasury yields held lower, with the 10-year yield at 2.22 percent and the at 0.65 percent.
Adding to negative sentiment on growth, the number of new lows on the New York Stock Exchange hit the highest level since last October.
"It's a concern," said Marc Chaikin, CEO of Chaikin Analytics. "I think this is a one time when the technicals really have to be your guide. The internals—breadth numbers—are not good."
Still, he said that "until we break that 2,040 level on the downside, I think everything is going to signal the bull market is still intact."
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European stocks closed lower, with the DAX off about 2.5 percent Monday. U.S. stock index futures gave up early gains to trade lower, with Dow Jones industrial average futures down more than 100 points.
"China's already happened so there's nothing more to happen out of China today," said James Meyer, chief investment officer at Tower Bridge Advisors. "What you're going to watch today is commodities and earnings. It's the biggest week in S&P earnings this week."
The Chinese search engine Baidu posts results after the close. Several Internet giants reporting results over the next few days include Twitter on Tuesday, Facebook on Wednesday and LinkedIn on Thursday.
Major U.S. Indexes
Meanwhile, June durable goods data showed an increase of 3.4 percent, beating expectations slightly. No other major economic data is due.
The Federal Reserve begins its two-day meeting on Tuesday.
In corporate news, Israel's Teva Pharmaceutical said it will buy Allergan's generic pharmaceuticals business for $40.5 billion.
U.S. regulators fined Fiat Chrysler a record $105 million for lapses in safety recalls.
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The Dow Jones Industrial Average closed down 127.94 points, or 0.73 percent, at 17,440.59, with Boeing leading decliners and Intel the greatest advancer.
The closed down 12.00 points, or 0.58 percent, at 2,067.65, with energy leading nine sectors lower and utilities the only gainer.
The Nasdaq closed down 48.85 points, or 0.96 percent, at 5,039.78.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded above 16.
About 11 stocks declined for every four advancers on the New York Stock Exchange, with an exchange volume of 922 million and a composite volume of nearly 4 billion in the close. The average trade volume is 3.5 billion.
On tap this week:
Monday
Earnings: Canon, Norfolk Southern, Baidu, Restaurant Brands, Eastman Chemical, Torchmark, RPM International, Roper Technologies, Avalon Bay, Rent-A-Center
Tuesday
First day of two-day FOMC meeting
Earnings: BP, DuPont, Ford, Merck, UPS, Pfizer, UBS, JetBlue, Gilead Sciences, Twitter, Yelp, U.S. Steel, Panera Bread, SunPower, AK Steel, Corning, Cummins, Masco, Sturm Ruger, Buffalo Wild Wings, Equity Residential, Express Scripts, LVMH, DR Horton
9:00 am: S&P/Case-Shiller
9:45 am: Services PMI
10:00 am: Consumer confidence
Wednesday
Final day of FOMC meeting
Earnings: Facebook, Samsung, Whole Foods, Barclays, MasterCard, Anthem, General Dynamics, Northrop Grumman, Gannett, Garmin, Nissan, GlaxoSmithKline, Marriott, LaQuinta, Western Digital, Booz Allen Hamilton, Carlyle Group, SolarCity, Shutterfly, Thomson Reuters, WR Grace, Tableau Software, Sonus, Goodyear Tire, American Tower, Total
10:00 am: Pending home sales
2:00 pm: FOMC statement
Thursday
Earnings: A-B InBev, Procter & Gamble, ConocoPhillips, Delphi Automotive, CME Group, Teva Pharmaceutical, Colgate-Palmolive, Sanofi, Amgen, LinkedIn, Boston Beer, FireEye, Western Union, Brunswick, Stanley Black and Decker, Marathon Petroleum, Starwood, Fiat Chrysler, Mondelez, Deutsche Bank, Diageo
8:30 am: Initial claims
8:30 am: Q2 GDP
Friday
Earnings: Exxon Mobil, Chevron, Honda Motors, Seagate Technology, TransCanada, Newell Rubbermaid, Weyerhaeuser, Phillip 66, CBOE Holdings, Legg Mason, ArcelorMittal
8:30 am: Employment cost index
9:45 am: PMI
10:00 am: Consumer sentiment
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