The Dow dropped 392 points or 2.32 percent Thursday and the NASDAQ fell three percent marking the fourth straight day that stocks have fallen in New York. As with the previous three days, chaos in the Chinese markets was the catalyst. The Chinese government halted trading for a second time this week as stocks dropped 700 points—this time in a matter of minutes after opening. U.S. stocks have lost over four percent so far in four days of trading in 2016.
In China, the Shanghai composite fell 7 percent, while the Hang Seng closed down more than 3 percent. Japan’s Nikkei 225 was down 2.3 percent and European stocks closed more than 2 percent lower despite an intraday attempt to pare losses.
In addition to the stock sell-off in China, markets overnight were troubled by news that the People’s Bank of China devalued the yuan to 6.564, its lowest since 2011 and the largest daily change since Aug. 13. “Another day here, another devaluation of the yuan. I don’t think a lot has changed a whole lot coming into today except energy continues to go down,” said Art Hogan, chief market strategist at Wunderlich Securities.
Despite rising tensions in the Middle East and news Korea may be developing a hydrogen bomb, Brent crude oil prices fell again today down 3 percent, closing at $33.27 a barrel—a 12-year low. The reason oil prices are falling is expectations of lower demand in China due to its economy, and high inventories since producing nations have not cut production.
Analysts are saying that the stock market is now in correction territory. The Dow is down four percent and more than 40 percent of the stocks in the benchmark S&P 500 stock index are 20 percent or more off of their highs. By definition, this is a bear market. What is worse is that 219 stocks in the S&P 500 index are down 20 percent or more from their 52-week highs and 374 stocks are down more than 10 percent according to Ryan Detrick, market strategist at Kimble Charting Solutions in Cincinnati, Ohio.
“U.S. equity markets are extremely oversold to start this year, so a bounce could happen at any time. The bigger issue is the deterioration of stocks under the surface,” said Detrick.
While the equity markets were having a bad day, the news on the jobs front was much brighter. The Labor Department reported that the number of Americans filing for US unemployment insurance benefits fell last week, trending at 40-year lows. Initial jobless claims, a sign of the pace of layoffs, dropped by 10,000 to 277,000 in the week ending January 2, the Labor Department reported.
The news about the stock market, particularly because it is a reaction to events in China, will certainly find its way into the political debate. Republican candidates are certain to blame it on President Obama and his policies. Trump, who makes China a part of every speech, will likely be energized with the news.
What is clear is that we are in a global economy. It is in our interest to help China recover. We owe them a great deal of money and they own a large part of our national debt. If they fall, we are not far behind. This is a time for solutions, not self-aggrandizing, self-serving empty rhetoric. Unfortunately, with eleven months remaining before the election, the end of empty rhetoric is nowhere in sight.