As if China wasn’t worrying investors enough, the odds of a Fed rate hike in September seems to have lowered. “This is about growth“. The Nasdaq crumbled 6.8% while the S&P 500 sank 5.8%.
“We’ve known that global growth has been slowing for a while, but when China started devaluing its currency and setting off a wave across other emerging markets, it made investors more nervous”.
On Friday, more bad news: A gauge of manufacturing showed that key sector on the mainland is continuing to contract. The Standard & Poor’s 500 was also down significantly, losing 3.2 percent Friday and closing below the 2,000 mark for the first time since early 2015.
The Dow Jones industrial average fell 530.94 points, or 3.1 percent, to 16,459.75. The Nasdaq is precariously close to being in a correction, down 9.8 percent from its most-recent high, but that is not by definition a correction.
China’s cooling economy has caused the Shanghai index to tumble this week despite a massive government intervention. “If the Fed doesn’t raise rates, it could signal the economy is truly weaker than everyone previously expected”.
Arguably, the U.S. stock market was heating up, and weak company earnings weren’t lining up with high stock prices.
Through all of this, it’s worth remembering that U.S. stock indexes had hit record highs earlier this year, after logging double-digit gains in each of the last three years.
The mood in markets, already soured by overnight weakness on Wall Street, darkened further on a grim reading of China’s factory activity.
The benchmark index dropped 4.3 per cent to 3507.74, clawing its way above the 3500 level in the last five minutes of trade.
The small-cap index Russell 2000 fell 1.2% and officially entered correction territory, dropping more than 10% since its peak on June 23.
Tokyo’s Nikkei 225 index plunged 3% and Hong Kong’s Hang Seng Index fell 1.5%.
U.S. government bond prices rose, pushing the yield on the 10-year Treasury note to 2.04 percent.
Deere (DE.N) fell 1.6 percent to $26.84 after the maker of John Deere tractors, reported a 40 percent fall in quarterly profit. The oil industry was among the biggest losers as stocks dropped and oil prices briefly dipped below $40 a barrel – bad news for the America’s first tar sands mine.
ENERGY: Benchmark U.S. crude fell 26 cents to $41.06 per barrel in electronic trading on the New York Mercantile Exchange. China wanted the global Monetary Fund to include its currency, the yuan, in the basket along with the U.S. dollar, euro, British pound and Japanese yen starting January 1. The US$1 trillion (S$1.4 trillion) of capital that has flowed out of emerging markets in the past year is also evidence of a sharp drop in investor confidence. “They’re afraid to say to what degree their economy has really slowed down”.
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”.
“They’re just not going to be buying as much oil”, Patrick Newport, an economist with IHS Global Insight, said of China. “In December 2013, for example, there was a scare about the ‘fiscal cliff.’ There were some major events that could affect investments”.