China Sell-Off Causes Dow Jones Crash
Time and time again, writers talk about how when China sneezes, the world catches a cold. Well on Tuesday, China caught a cold and the world got Ebola. The Dow Jones crashing 416 points was the top story on all major U.S. news programs Tuesday. And the reason? China. So what exactly happened on Tuesday? Well, in order to understand, one must look all the way back to Monday when Chinese stocks hit a record high. As we’re taught in Econ 101, you’re supposed to sell high and buy low. So on Tuesday investors, who have watched Chinese stocks rise steadily in the last year, began to sell. As the New York Times reports:
The benchmark Shanghai Composite index, which had passed the 3,000 milestone on Monday after the weeklong Chinese New Year holiday, shed 268 points, or 8.8 percent, to close at 2,771.79…The wave of selling then spread to Europe, and later to the United States, where a government report showed that orders of durable goods — big-ticket items that include washing machines, airplanes and semiconductors — declined more than expected in January. That hastened the sell-off on Wall Street…Chinese share prices have swung wildly in recent months, rising on huge interest from largely inexperienced retail investors in soaring stock prices, then falling on stern Chinese government warnings about “blind optimism” in the market.
Basically, China’s markets are now officially linked to the world’s markets and the volatility of the China markets is beginning to become a problem. Market analysts predict that the China markets, as well as Western markets, will climb back up to normal in the coming weeks. Compounding the China sell-off was a report released Monday by the U.S. Commerce Department announcing a 7.8 percent drop in orders for big-ticket goods made in U.S. factories. It is not clear how big of a factor this was in the U.S. market crash. Who knew that Shanghai had such a real-deal stock market? I mean, they show the numbers everyday on CCTV, but I had no idea that this market was legit in any way.
•NYT: Dow Average Falls 416 Points After China Sell-Off