Stock-market bulls had their mettle tested last week, as the major indexes fell 3% in the biggest weekly selloff since mid-2012. After last year’s rocket ride, investors who forgot that the U.S. stock market is still tethered to global markets were rudely reminded that it’s a small world after all.

The retreat was sounded, before the U.S. markets opened Thursday, by surprisingly poor economic numbers from China. That snowballed into sizeable currency declines in emerging-market countries around the world, among them Argentina and Turkey. The avalanche moved to U.S. shores, where shares sold off precipitously Thursday and Friday. Unspectacular fourth-quarter earnings and domestic economic reports took a back seat to the global turmoil. Small-cap stocks fell hard, too, as investors switched to the “risk off” trade.

By the end of a holiday-shortened week, the Dow Jones Industrial Average fell 3.5% or 580 points to 15,879.11. The Standard & Poor’s 500 index lost  48 points to 1790.29. The Nasdaq Composite index gave back 1.7%, or 69 points, to 4128.17. The Russell 2000 small cap index fell 3.3% to 1142.66 from a high of 1181.29 Wednesday.

Kate Warne, an investment strategist at Edward Jones, says the Chinese data, much weaker than expected, revived worries of a growth slowdown in the Middle Kingdom. That translated into fear about other emerging markets, many of which are important suppliers of raw materials or other inputs to China. Released before the U.S. markets opened Thursday, the HSBC January China Manufacturing Purchasing Managers’ Index fell to 49.6 from 50.5 in December. A below 50 reading suggests contraction.

 (Source:  Barrons Online).