Fears of a China slowdown ripped through global markets and sent U.S. stocks to their lowest level of the year on Thursday.
All the major indexes were in the red. The Dow fell 358 points to close below 17,000, for the first time since last October. The index fell 2.06% — the worst loss since February, 2014.
The S&P 500 fell 2%, turning negative for the year. The Nasdaq dropped 2.8%.
It’s a major warning sign given that global stock markets, such as the U.K.’s benchmark index, have already entered a correction — a 10% drop from its peak in just four months.
The Dow was down over 7% from its recent high in May.
A few factors fueled the sell off Thursday.
1. Global slowdown fears
China’s economic slowdown and currency devaluation have investors worried that things could get worse as the year goes on.
Developing countries like Brazil and Russia, are struggling to revive their economies as their currencies depreciate dramatically against the dollar.
Brazil’s currency value has declined over 20% and Russia’s over 40%, hurting imports and everyday citizens.
It’s a also a huge worry for America’s biggest companies. About 44% of the revenues from S&P 500 companies come from outside the United States, according to Scott Wren, senior global equity strategist at Wells Fargo Investment Institute.
“We’ve had some downgrades in global growth recently,” says Wren.
2. Uncertainty around the Fed’s timing.
America’s central bank hasn’t been particularly clear on its plans to raise its key interest rate. Many investors and economists had bet on a Federal Reserve rate hike in September.
But in the Fed’s minutes published Wednesday, the Fed’s committee members sent the market mixed messages.
On one hand, some committee members say the economy is almost ready for a rate hike. On the other, committee members cited increased concerns about the global economic outlook.
“It’s difficult to interpret what they’re going to do,” says Craig Hodges, chief investment officer at Hodges Capital in Dallas. “A lot of people are really looking forward to getting this Fed [rate hike] behind us.”
Some on Wall Street dub the Fed the “World’s Central Bank,” and the Fed is acutely aware that its action reverberate across global markets.
Wren and others now think the Fed might delay its long-anticipated rate hike until its December meeting.
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