Why US Stocks Had Worst Day in 4 Years

BySUSANNA KIM via ABCNews logo
Saturday, August 22, 2015
Why US Stocks Had Worst Day in 4 Years
Traders work on the floor of the New York Stock Exchange on Aug. 21, 2015 in New York.

Following a slump in the U.S. stock market yesterday, shares continued to plunge today related to domestic and global economic concerns.

Today, the Dow Jones industrial average had its worst day in four years, losing about 530 points, down 3.1 percent, to 16,460 at the close of trading in New York; and the S&P 500 fell about 64 points, or 3.2 percent. Both indices had their biggest percentage drops since November 2011. The Nasdaq composite dropped about 171 points, or 3.5 percent.

Many U.S. companies and investors are worried about the second-biggest economy in the world, China, and how a slowdown there would affect their production and trade, according to experts. The Dow Jones industrial average and Standard and Poor's 500 index had their worst decline on Thursday since Feb. 3, 2014.

Here are some of the factors affecting U.S. markets:

1. China Slowdown WorriesSimilar to Thursday's decline, today's weakness in the markets is again centered around China, said Ben Garber, Moody's Analytics economist. He pointed to a preliminary August survey released today showing Chinese manufacturing activity fell to a six-year low, which may mean lower demand for American goods. Substantial declines in Chinese stocks once again fueled sell-offs around the globe.

Last week, China devalued its currency, the yuan, with the hope of spurring its own economy by making its goods cheaper and imported goods, like those from the U.S., more expensive.

2. Federal Reserve SkepticismThe Federal Reserve released minutes from a recent meeting and revealed that the hike in interest rates that many investors expected in September may not happen after all. The U.S. central bank hasn't raised interest rates in nearly a decade.

With interest rates near zero in most economies, "If another recession comes, markets are worried that governments may not be able to respond as flexibly," Boston College economics professor Bob Murphy said.

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. Some economists are concerned that a hike in interest rates and a subsequent increase in mortgage rates could lead to a fall in housing prices and jobs slowdown.

3. GreeceGreek Prime Minister Alexis Tspiras announced his resignation on Thursday after less than a year in office and called for new elections as the country receives debt relief.

"New elections might solidify this support, but in the near term will increase uncertainty about whether the Greek crisis re-emerges this fall," Murphy said.

4. More Global ConcernsElsewhere in the world, Kazakhstan's currency lost a quarter of its value on Thursday as it switched to a floating exchange rate.

"Though this country's performance does not threaten the global economy by itself, it speaks to further upward pressure on the dollar and concerns about the negative impact of a potential Federal Reserve rate hike," Moody's Garber said.

5. Oil LowsThe price of oil is now testing six-year lows. Today, the price of U.S. crude oil slid below $40 a barrel for the first time since 2009.

Garber said the decline of oil prices and of other commodities signal fading emerging market growth prospects, ensuring "continued poor results for firms in the energy and mining sectors."

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