U.S. Stock Market Has a Bumpy Ride As China’s Growth Slows

The U.S. stock market had a bumpy ride on Friday and Monday, spurred by concerns over China’s slowing economic growth. The market rode a rollercoaster of gains and losses to end Monday down more than 3.5 percent. Today, the market saw an early upswing, with the S&P 500 rising more than two percent, and the Dow Jones industrial average rising more than 300 points.

“Volatility and dramatic market declines are always unsettling and often serve as a harbinger of economic declines,” says Marc Simon, CEO of HALO Branded Solutions. “At the same time, many of the fundamentals of the U.S. economy remain stable. I believe we will weather this latest storm. Much of the issue is said to center on problems in China’s economy. While U.S. dollar strength relative to the Yuan will provide a lift to our industry, economic upheaval may put undercapitalized Chinese factories out of business.”

The Dow Jones industrial saw its biggest one-day swing ever on Monday, dropping by as much as 1,089 points. In the first 90 minutes after opening, the index saw a rise and fall of more than 3,000 points. Further, the S&P 500 traded 80 points lower after a 100-point drop when it opened.

Simon adds, “Unless the stock market decline continues and extends to the credit markets, our industry should be OK.”

China’s stock market closed down 7.6 percent after today’s trading, following an 8.5 percent drop on Monday. After the market’s close, officials there cut interest rates and the amount of money banks are required to have on hand to stabilize the situation.

Kamel Mellahi, professor of strategic management at Warwick Business School, says, “The market is looking for some strong signs that China has enough ammunition and more importantly it is willing to use it effectively to weather this storm. The cut of interest rates by 0.25 percent and lowering the bank reserve requirement ratio by 0.5 percent may calm the stock market turmoil, but does not address the underlying causes.

“The devaluation of the Yuan, a decline in exports, and multiple signs that China’s economic pulse is slowing down at a much faster pace than expected have created a toxic cocktail, fuelling uncertainty and eroding confidence in the turnaround of the Chinese economy,” adds Mellahi. “The Chinese economy has hit some rough weather for sure. But is it a passing storm? I think so. What we are seeing now is a dress rehearsal of things to come. The Chinese economy is going to be on this bumpy road for a while and it will have ebbs and flows that will no doubt have a serious impact on the global economy.”

filed under august-2015 | industry-news
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