Growing concerns about a slowdown in China shook markets around the world on Friday, driving the U.S. stock market to its biggest drop in almost four years.
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The rout started in Asia and quickly spread to Europe, battering major markets in Germany and France.
Before this week, U.S. equities had held their ground throughout 2015. Investors ditched beaten-down oil companies, as well as Netflix, Apple and other technology darlings.
Oil plunged below $40 for the first time since the financial crisis, and government bonds rallied as investors scooped them up in a flight to safety.
Apple fell 4.6 per cent to US$107.44 as investors continued to fret over its prospects in China, a key market for the iPhone maker. “This is about growth“. The S&P 500 dropped about 3.2%.
Stocks have seen few large moves this year, staying in a narrow range throughout the year, but volatility spiked this month once China surprisingly devalued its currency.
The collapse was triggered by fresh data from China suggesting its manufacturing sector shrank at its fastest pace in more than six years in August as domestic and export demand dwindled.
Despite the central bank’s continuous injection of funds this week, the stock market has fluctuated dramatically.
The Nasdaq Composite fell 3.5 percent Friday to close at 4,706.04. “They are just waiting and they are going to step back in next week”. “It’s totally premature to speak of a crisis in China”.
Those worries are valid, said Jeremy Zirin, head of investment strategy at UBS Wealth Management. “If the Fed doesn’t raise rates, it could signal the economy is truly weaker than everyone previously expected”.
This week, investors appear to have finally decided on their course, wiping out the year’s gains amid a broad selloff that pushed the markets into negative territory – and to their lowest point since February.
Stocks were clobbered Friday on Wall Street – a brutal finish to the worst week in the market in nearly four years. The last time the market slipped into a correction was in October 2011.
Meanwhile, investors were still pondering over the ongoing uncertainty about the timing of an interest rate hike by the US Federal Reserve. Only 10 S&P 500 components gained on Friday.
Indicators in the US economy have been mostly positive in recent months – but some investors have feared that the stock market may have jumped ahead of economic growth.
Lindsey Piegza, chief economist with Stifel, Nicolaus and Company, said a large portion of the decline in stocks is an acknowledgment that the U.S. economy is fundamentally not strong enough to withstand a rising rate environment. “As long as the whole global economy doesn’t shut down, you will survive”. The euro and yen have recently tended to rise during times of market stress. The yield of the 10-year Treasury note fell to 2.054 percent Friday, from 2.08 percent Thursday. The Dow lost 3.12 per cent to 16,459.75 on the final session of the week, taking the blue chip index’s losses to nearly 6 per cent for the past five days.
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The Shanghai composite index on mainland China dropped over 4%. That correction was brought on by a mixture of things, one being the U.S. authorities’s close to breach of its debt ceiling and subsequent credit score downgrade from Commonplace & Poor’s, in addition to fears about Greece’s monetary situation.
