Dow Sheds 470 in Another Huge Drop

In trading today, the Dow was down 469.68 points. It closed the day at 16,058.35. The S&P 500 led the day in losses, falling nearly 3%, or 58.33 points, to 1,913.85. The NASDAQ dropped 140.40 points and closed out the trading day at 4,636.11.

Only 3 Stocks Rise in S&P 500

The S&P 500 had a rough day today, with only 3 stocks rising in the entire index. Cablevision (), Sigma Aldrich (SIAL), and American Airlines (AAL) all bucked the trend and ended the otherwise down day in the black.
This marks a 10% decline for the index, down from highs that it reached in May.

An Up Day for the Euro

Despite the downturn, European currencies had a decent day today. The Euro was up by 0.90% and the UK's pound added 0.32% in trading today. Both currencies are relatively untethered from the situation in China, which is what is driving this latest downturn.

Chinese Situation Worsens, Drags Markets Down

The Chinese economy is officially in turmoil. What had started with a simple currency revaluation has ballooned into a full-fledged economic panic. The once-burgeoning Chinese middle class is now in a period of contraction, and that's taking a toll on economies worldwide.

The problem lies with the Chinese government, and the fact that they don't have any sort of regulatory body in place like the Fed to soften their upturns and downturns. For all of the flak that the Federal Reserve gets here at home, it does act like a stabilizing force during problems like this when a single societal demographic is having uniquely bad problems.

China, being a Communist society well on their way to Capitalism, has still yet to implement the same sort of modern measures that the US has in order to control economic fluctuations. Instead, when problems like this pop up, it means that their currency and markets will fluctuate wildly.

The core of the issue isn't exactly the Chinese middle class, but rather the government's handling of their economic problems. They were counting on sustained 5% growth, meanwhile the US posts steady 2% growth as a matter of course. China's expectations for their growing economy are plainly too high, and when they fail to meet their mark fluctuations like this occur.

What this means going forward is largely unclear. China has a large and diverse economy, along with a huge population, but it's only capable of so much growth in a given quarter. It may be time for China to face reality and adjust to the fact that their economic boom times are in the past, and they're only capable of growing at the same 2% - 3% of their Capitalist counterparts.
Published on Sep 1, 2015
By Aaron Phillips
Aaron Phillips is a financial researcher and journalist based out of Michigan. He regularly writes the IG Daily and IG Weekly columns.

Copyrighted 2016. Content published with author's permission.

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