The stock market’s steep decline this week has pushed the Dow Jones industrial average into what is known as “correction” territory.
Concerns about global economic growth – especially in the world’s No. 2 economy, China, after it unexpectedly devalued its currency – have been an increasing weight on the stock market.
However, as volatility picks up worldwide, and investors flee to the sidelines, two uncertainties remain, said Mr Lawson, “the magnitude of the Chinese slowdown, and whether central banks will inject more stimulus”.
The stock market was down when it closed Friday and the Dow Jones has dropped dramatically. The major Shanghai Composite Index dived 6.15 percent on Tuesday, followed by a slight recovery on Wednesday and another slump of 3.42 percent on Thursday.
The main indexes posted massive one-day selloffs and their biggest weekly declines in almost four years. But he said he is waving a ” yellow flag of caution” for the short term. On a percentage basis, Chinese stocks crashed even more than U.S. stocks did.
The worries were evident across the globe, both Friday and in the days before.
Among leading indices, Tokyo shares lost 2.98 per cent, Hong Kong 1.53 per cent and London’s benchmark FTSE 100 lost 2.83 per cent.
The S&P 500 fell 64.84 points, or 3.2%, to settle at 1,970.89, falling below 2,000 for the first time since February. The S&P 500 is off 7.5% from its all;-time high, while the Nasdaq is off 9.8% and the Russell 2000 is off 10.7%.
Oil briefly plunged below $40 a barrel in New York for the first time in more than six years on signs the supply glut will be prolonged.
Before this week, U.S. equities had held their ground throughout 2015, weathering turmoil from Greece and headwinds including a strong dollar that threatened multinationals’ earnings and a more than 60 percent drop in oil prices. In particular, investors were spooked by a report showing China’s factory sector may have contracted in August at a rate not seen in more than six years. “And this something has to translate into a weaker U.S. dollar”.
Weak manufacturing data out of China was the latest bad news to wreak havoc in financial markets this week.
Japan’s economics minister, Akira Amari, said on Friday he expected China’s government to take steps to prevent its economic slowdown from becoming a global problem. A reading above 50 indicates expansion, while a reading below that represents contraction.
The U.S. job market is not “solid”. “We are watching really closely the connection to the rest of the world and whether this is enough to slow growth in the rest of the world”.
Analysts at Societe Generale said: “Be it via the crash on the equity market or the surprise FX regime change, China has sent shockwaves through global markets and raised numerous questions on the outlook”.
“Panic selling has hit US stock markets which tanked on the open as global growth concerns continued to weigh on sentiment following disappointing Chinese economic data”, said Lawler.
The Fed seems to be tilting towards an earlier rate liftoff with a pause afterwards (the “one and done” scenario for 2015).
Futures show that traders see a 34 percent chance the Fed will raise interest rates at its September meeting, down from a 48 percent probability at the end of last week.
Still, fear in financial markets can feed on itself. But a Fed delay would be viewed by many as a gesture of support and a positive for stocks.
But O’Hare also pointed to overly high valuations for US shares recently given modest growth prospects in the US economy.
“They shouldn’t move in September but quite likely they might”, said Krishna Memani, chief investment officer at OppenheimerFunds Inc., which oversees $230 billion in New York.