Monday the Wall Street Journal reports that following the steepest one-week decline in years for many major markets, the global stock-market selloff is continuing. While the S&P 500 entered correction territory, the Dow Jones Industrial Average briefly plummeted more than 1,000 points. European equities didn’t fair any better with Stoxx Europe 600 down 7.3% by afternoon trading. Treasurys surged as investors sought the relative safety of government bonds, while the U.S. dollar weakened and oil prices continued to drop.
Sparking the heavy selling around the globe is the fear that China’s economy is slowing dramatically. The unexpected move of Beijing to devalue its currency two weeks ago raised the alarm that the world’s second-largest economy may be in worse shape than many investors had thought. Weak economic data since fueled worries that a drop-off in Chinese growth could cause a global slowdown.
CNN Money reminds us that compared to “”Black Monday” in 1987, to day is not that bad. There’s a lot of panic today but the Dow was only down about 6.6 percent at its worst point, unlike October 19, 1987 when the Dow plunged a whopping 22.6%. In comparison, if today were like 1987, the Dow would have fallen 3,700 points.
While the stock market just made a correction, correction being a 10% drop from a recent peak, many experts agree that America was overdue for a correction. They are natural and likened to tapping the breaks on a bike or car.
On Friday oil prices dropped to below $40 for the first time since the Great Recession. This, of course, makes investors nervous. With a drop this big in oil prices, it means many companies aren’t making any money.
According to Investors, Shanghai and Shenzhen stock exchanges plummeted once again overnight causing the AlibabaGroup (NYSE:BABA), Baidu (NASDAQ:BIDU) and several other once high-flying China-based stocks to take significant hits early Monday. The blame is placed on the fears of an economic slowdown.
Chinese stocks in the index collapsed more than 8% percent Monday, the largest percentage fall since the global financial crisis in 2007. Even as economic growth looks to be flat or slowing, in recent months, Chinese authorities have shored up the stock market and encouraged citizens to buy shares.
A host of China companies traded on U.S. stock markets have received offers from top executives and others to go private, causing latest stock plunge. Deciding instead to go public in China, these companies plan to delist in the U.S. This is despite a steady stream of crashes in the Chinese exchanges that followed big run-ups that many analysts call a bubble.