new york
CNN
—
Many investors have made sizable profits this year, with the S&P 500 index up about 14% in 2023. However, market losses have piled up over the past month due to growing fears of contagion, particularly from China’s economic slowdown. Inflation, Russia’s war with Ukraine, and the weakening of American banks are also terrorizing Wall Street.
The Nasdaq fell 7.7% in August, while the S&P 500 fell nearly 5% this month. On Thursday, the Dow Jones Industrial Average closed below its 50-day moving average, a key benchmark often interpreted by investors as a bearish signal. The index fell 3% this month.
The CNN Business Fear & Greed Index, which looks at seven indicators of market sentiment, showed signs of fear on Friday for the first time since March. That’s a big shift from just a month ago, when the index was in “extreme greedy” territory.
what happened?
A downturn in the Chinese economy would be bad news for US stocks and potentially for your portfolio as well.
China’s personal consumption, factory production and investment in long-term assets (such as real estate, machinery and other commodities) all slowed in July, according to China’s National Bureau of Statistics.
Youth unemployment in the world’s second largest economy has repeatedly hit record highs. Earlier this week, the Chinese government decided to stop publishing its monthly data altogether.
And the ongoing real estate and debt crises have some investors worried China could end up in a “Lehman-like” period.
Meanwhile, tensions between the United States and China are mounting as the world’s two largest economies clash over issues ranging from trade policy and technology to Russia’s invasion of Ukraine.
“For most of the last two decades, China’s economic growth has been a major driver of the global economy,” said Alex Etra, a strategist at data analytics firm Exante. This means that if China’s economy slows, global growth will also slow.
“U.S. stocks tend to turn negative when global economic growth slows. And part of that is due to the direct exposure of U.S. companies’ sales in China and the fact that China is a major consumer of commodities. It has to do with something.”
U.S.-based companies doing business in China could suffer losses if China’s economy continues to decline.companies like apple
(AAPL)intel
(INTC)Ford
(F) and Tesla
(TSLA) Both have strong ties to the country and manufacturing.Others such as Starbucks
(SBUX) and Nike
(NKE)relying on Chinese consumers.
The Fed has hiked interest rates by more than 5 percentage points over the past year and a half to combat soaring inflation.
Until just a few weeks ago, Wall Street seemed almost certain that the Fed’s rate hikes were all but over — many economists assumed that the rate hikes would send the U.S. into recession. Ta.
But a series of strong economic data are calling those notions into question.
The U.S. economy is resilient, with the Atlanta Fed forecasting a staggering 5.8% annualized GDP growth in the third quarter, unemployment remaining low and consumer spending strong.
Fed officials worry that inflation could continue to rise. At their meeting in July, the two leaders said further interest rate hikes may be needed soon, according to meeting minutes released this week.
Investors don’t like it. On Thursday, US 30-year Treasury yields hit their highest level since 2011, while 10-year Treasuries posted their best return since October 2022. When bond prices fall, bond yields rise.
Global inflation is finally coming down, but rising geopolitical tensions threaten to push up food and oil prices around the world. Russia’s invasion of Ukraine continues to raise fears over rising commodity prices, global economic instability and security uncertainties.
Jamie Dimon, CEO of JPMorgan Chase
(JPM)repeatedly cited the ongoing war as their greatest concern. Just recently he told CNBC two weeks ago The world is witnessing “serious” levels of “nuclear proliferation and nuclear blackmail,” he said. This level of geopolitical turmoil has not been seen since World War II, he said. “The world is not so safe.”
Concerns about the spread of infection still exist around the regional bank crisis in March. A fund managed by investor Michael Barry of “Big Short” fame has sold 150,000 shares in First Republic Bank.
(FRC) and Pacwest’s Huntington Bank holdings
(PACW) and Western Alliance
(wall) This was part of a major realignment of his portfolio that included a $1.6 billion bet on the broader stock market.
Big banks could be in trouble too: Fitch Ratings warned of further downgrades in the U.S. banking industry that could affect the ratings of some of the country’s largest financial institutions, according to reports Monday. Bank stocks fell.
Another reason for the recent turmoil is that few investors are paying attention.
A famous Wall Street adage is, “Sell and leave in May.” This is because the summer, especially his August, is a historically volatile time for the stock market. The main reason is that so many investors are on vacation and trading volumes are down. This drop in activity can lead to increased volatility.
On average, August has been the worst month for stocks since 1986, according to Morningstar.
This August is a busy month for the end of summer. It’s jam-packed with economic data and big company reports. This means that the number of traders who have been trying to get by, especially in a volatile environment, has dwindled.