America’s stock markets suffered a dramatic selloff Friday and posted their biggest loss of the year.
The benchmark Dow Jones Industrial Average plummeted 531 points, and had its worst week since 2011. That performance was replicated around the world, where virtually all major indexes also fell for the week. Most global indexes are now in the negative for the month of August.
Investors appear concerned that China’s economy is slowing down more rapidly than its government has reported.
Also weighing on investors’ minds is whether the U.S. Federal Reserve will raise its benchmark interest rate in September. This was previously assumed to be happening but the central bank appears to be sending mixed signals. Markets are notoriously wary of uncertainty.
Another significant development today is that oil prices dropped below the key $40 level and are now at their lowest point since 2009.
The Dow is now officially in a correction, having fallen 10 percent from its most recent high point reached on May 19th.
The broader S&P 500 was also down, losing 5.7% for the week. It was its worst weekly performance since 2011. The Nasdaq too was down and is also nearing correction territory. It fell 6.8 percent for the week.
Poor performance across the world’s markets seem to be indicating a worldwide economic slowdown, as the two engines of the global economy, the United States and China, continue to disappoint.
China’s government reported Friday morning that its manufacturing activity, a key indicator of economic performance, reached a six year low in July. This fits with anecdotal reports of India continually stealing manufacturing business from China, a key policy implemented by new Indian prime minister Narendra Modi.
This report added to fears raised by last week’s surprise devaluation of the Chinese yuan.
While Chinese officials insist the economy grew 7% in the first half of this year, many experts suspect its notably worse.
“There’s nobody that really believes that China is growing at 7%,” stated Tim Anderson of MND Partners in New York. “They’re afraid to say to what degree their economy has really slowed down.”
While China appears to be a primary driver of the latest selloff the American economy remains another key issue. Interests rates, a key signal about true economic performance, look to be steady throughout September. No rate hike implies the federal reserve has less confidence in the U.S. economy.
The central bank released minutes from its July meeting earlier this week, which appeared to show some members are on board with a rate hike while others are concerned about the lack of inflation in the U.S. as well as the global economy.
Both factors have clearly left investors feel skittish and record low oil prices seem to confirm that worldwide economic activity has notably slowed.