The Dow is 10 percent off its high water mark earlier this year, which qualifies as an official market correction, the first since 2011.
But behind that were the signs that Beijing is struggling to prevent a stall in the world’s second-largest economy, and that its actions – like the devaluation of the yuan last week – was having a negative impact throughout emerging markets and would drag in developed economies as well.
The S&P 500 (.SPX) was down 38.75 points, or 1.9 percent, at 1,996.98 and the Nasdaq Composite (.IXIC) was down 100.71 points, or 2.06 percent, at 4,776.78.
China maintained an average growth rate of more than 10 percent until 2010, with its GDP growth rate reaching a peak of 14.2 percent in 2007. Strategists and traders, noting the lack of major U.S. economic news, said the drop in stocks was also likely tied to computerized selling after the S&P 500 moved below one of its most closely watched indicators, a 200-day moving average.
That’s unwelcome news for anyone with a 401(k) invested in stocks. The measure was apparently aimed at stimulating China’s exports, but one analyst at a major securities firm said, “Concerns that the Chinese economy is in that bad a shape as to need a cut [in the rate] have grown”.
The nervousness has been intensified by a slump in the price of commodities such as oil, hitting big exporters like Russian Federation and its neighbours in particular.
“Some people will now be starting to be thinking about a bear market, but I think it’s a bit early to be talking about that but it will certainly be in a few headlines”, Mr. Williamson said. On the foreign exchange market, the yen – believed to be a relatively safe asset – was bought, and the value of the currency rose to around ¥122 against the U.S. dollar.
Until recently, investors seemed willing to shrug off any worrying news, confident that low interest rates from the Federal Reserve and rising corporate profits would help push stocks higher.
And if investors needed further proof that the market is volatile, the VIX – also known as the “fear index” – jumped 40% on Friday to 26.81. Kenjol said the selloff was “overdone”, but added that, without some sort of positive news, “there is no reason for buyers to step in and get long at this point”. “All the global markets are going to open down, and unless they can rally, we’re going to open down”, Armstrong told the Herald. But yesterday, a survey showed a drop in manufacturing in China, the latest sign that the world’s second-largest economy may be worse than thought.
In Europe, markets finished the week with heavy losses on Friday. The S&P 500 plunged 64 points or 3.19 percent.
On Friday, all 3 blue chip indices experienced declines throughout the sell off. Here’s what we saw from each…
Tokyo’s Nikkei 225 index plunged 3% and Hong Kong’s Hang Seng Index fell 1.5%.
In the commodity markets, gold gained $6.40 to settle at $1,159.60 an ounce. “You have across-the-board competitive currency devaluations that will invoke the deflationary monster here in the US“.
“Even the threat of a significant Chinese slowdown”, wrote Elliot Wilson in the respected UK weekly The Spectator two weeks ago, “could send the rest of the world back into recession”.