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'Official': U.S. markets in 'correction'

S&P down 100

4:15 p.m.: "Having declined more than 10% since the peak on May 19, the market is now officially in 'correction' territory," David Roccato, president of $95 million asset Quaker Wealth Mangement LLC, Moorestown, NJ, told clients in a note just after the U.S. stock markets closed today, with the S&P 500 falling 3.9% to close below 19,000 for the first time since last October and wiping out 2015 stock market returns to date. The Dow fell 588 points (3.5%).

Beyond the "correction," biotech stocks and some other sectors "hit bear market territory," dropping 20% from highs earlier this year, said Ernie Cecilia, chief investment officer at Bryn Mawr Trust Co., which has been hand-holding some nervous clients.  The Dow ended down 588 points, with Nasdaq off nearly 180 points in the course of the day's trading.

What's spooking stock traders? "The rigged Chinese market," where prices have fallen below year-ago levels after a surge early this year; selective declines in U.S. stocks like market-leading Apple Computer, which gets one-sixth of it sales from China; falling fuel, meat and other commodity prices -- which is good for U.S. consumers; uncertainty over Federal Reserve interest-rate targets; and the popular suspicion that three-year bull market may have been goin gon too long. "We actually prefer a violent, sudden drop" to a steady decline, concluded Quaker's Roccato, who also teaches economics at Rutgers.

He urged clients to buy high-dividend stocks (banks, industrials) rather than "monentum names like Apple and Tesla" whose high prices are sustained by the hopes of gigantic future profits, someday.

12:30 p.m.: Investors in U.S. stocks cut losses today. The broad indices are still down again, after last week's steep decline, but have bounced more than halfway back from this morning's 1,000-point Dow-Jones 30 Industrial/100-point S&P 500 declines.

Stocks have fallen in recent days alongside junk bonds and commodities; the fact all fell together is a sign of "panicky or forced selling," says Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott. He's predicting hedge-fund failures and desparate purchases of U.S. Treasuries, which are already "overbought" (compared, for example, to high-dividend stocks). And the Fed is now more likely to delay its long-expected rate hike, from next month, until December, or later.

Whatever its day-to-day moves, "this market is going to sell off sharply, until the selling exhausts itself, probably within "hours, or days," not months or weeks, wrote James M. Meyer in a report to clients of Boenning & Scattergood, West Conshohocken as prices plunged pre-trading.

Meyer notes that U.S. exports to China are small -- 1% of US GDP -- so China's problems are more a worry for raw-materials exporters like Canada, Australia, Argentina than for the U.S. It's all good news for U.S. consumers, if not U.S. companies: The "meltdown in commodities prices" is a problem for banks that finance producers -- oil is down more than 75% from its 2008 peak, 60% from last summer -- and "wholesale debt defaults and bankruptcies" are likely for refiners, warehousers and other commodity producers.

The good news, he adds: Gas prices "could fall to close to $1.50 (a gallon) before Christmas." Globally, "supply still exceeds demand" for many commodities where companies invested and production rose on expectation of Chinese demand that hasn't materialized or has fallen apart.

So how far will stocks fall? "Don't try and be cute and pick the bottom," warned Meyer. "There  can be very sharp rallies in bear markets" before they fall again. But "if your favorite stock falls" to where it's a lot more affordable than you thought last month, "buy a little." Meanwhile, for Americans who work and aren't broke, food is cheaper, other jobs are less difficult to find than they were, and lots of information and programming has become more easily available thanks to smartphones and other cool gadgets, he adds.

A drop in beef exports to China, combined with a jump in the number of cattle now being fed for slaughter, and a rising supply of cold-storage beef, promises likely falling beef prices, two years after the last big jump, Jonathan Feeney, Berwyn-based food-industry analyst for Athlos Research, told me. The strong U.S. dollar has cut into U.S. beef exports, while falling grain-feed prices have encouraged beef production despite weak demand. "Record high pork output" (up 10% over last year" also argues for falling meat prices.

11:30 a.m.: U.S. stocks gained back part of their overnight losses in Monday morning trading. The Standard and Poor's 500 remained off close to 3 percent; the Dow-Jones Industrials' earlier 1,000-point drop has been cut by more than half, making it a little less likely it will see its first-ever four-digit decline, says Reuters here.

All this after China stocks fell to last year's levels in trading yesterday. Bloomberg story here.  Alibaba, the China-based e-commerce company and investor in Western firms like Michael Rubin's West Conshohocken-based Kynetics, fell below last year's IPO price for the first time, losing nearly half its value from last November's high.

9:30 a.m.: Biggest drop among big-company stocks: UnitedHealth Group off 15%; Visa off 13%; GE off 11%; JPMorgan Chase off 10%; Home Depot and Nike, both down about 9%; DuPont and Merck, 8%. Less bad: Intel and Microsoft, down around 5%. Philly interest: Comcast, off less than 5%. SAP off 6%. Ace Ltd. off 8%. Lincoln National off 7%.

Wost-hit stocks include miner Freeport-McMoran, off 14%; oil driller Chesapeake Energy, off 11%. Netflix off 12%. CVS off 12%. Among the few stocks up sharply: Texas-based gas distributor AGL Resources is up 25% on Southern Co.'s $8 billion takeover bid.

This doesn't look much like what happened last time the Dow fell 500 points out of a not-so-cloudy sky, on "Black Monday," Oct. 19, 1987. Of course, back in those less-inflated times, that was a 23% drop in the market, vs 3% now. That time, the next day, the Dow rose 6 percent the next day 10 percent the day after that, recalled Daniel Wiener, publisher of the Independent Adviser for Vanguard Investors newsletter. No bounce yet, but half an hour after opening prices have stabilized a bit.

The stock "correction is a buying opportunity," argued Jason Pride, director of investment strategy at $30 billion-asset Glenmede, the Philadelphia investment manager. Tracking the VIX index of market volatility, Glenmede analysts think lower stock prices are on the way and invesors "should remain patient" before putting their money into bargain-looking stocks.