The U.S. stock markets experienced their wildest trading day in years Monday, with the Dow Jones index losing nearly 1,100 points — nearly 6 percent of its total value — in the minutes after trading began, staging a spirited rally, but turning strongly negative again to finish off 588 points, or 3.58 percent.
A classic roller-coaster day, following even bigger losses in China and in all of the major European markets, saw Wall Street rally after a disastrous opening but never managing to come close to positive territory. A midday rally, which cut the Dow’s losses below 200 points, was swamped as sellers re-entered the market in force, sending the index down more than 700 points a half-hour before the close.
The falling values have put both the Dow and the broader S&P 500 on pace for their worst monthly losses since the depths of the global financial crisis in early 2009. The Dow, which climbed above the 18,000 mark for the first time ever earlier this summer, finished the day at 15,871.28.
The plunge followed a string of sharp losses late last week, amid growing concerns about the strength of the Chinese economy, the prospect of higher U.S. interest rates, and continued troubles in many of the emerging markets that had fueled a decade of stock growth. The market losses could have major policy implications as well, with the Federal Reserve weighing whether the U.S. recovery is strong enough to withstand an interest rate increase and White House hopefuls from Donald Trump to Bernie Sanders offerings their takes on what is driving the market pessimism.
White House spokesman Josh Earnest said President Obama, now vacationing on Martha’s Vineyard, and the Treasury Department were monitoring the gyrations of global markets, and insisted the fundamentals of the U.S. economy remained strong. He said the administration would continue to press China to pursue market-oriented economic and currency reforms and to be more transparent about the workings of China’s domestic economy.
He said the market turmoil was another argument to avoid “self-inflicted wounds” to the U.S. economy, calling on Congress to reauthorize the Export-Import Bank and to ease spending caps on domestic investment programs.
The Dow has never lost more than 800 points in a single day, but the losses Monday were nowhere near the record fall on a percentage basis. The 1987 “Black Monday” crash sent the Dow down just 500 points, but that represented nearly 22 percent of the market’s total value. The S&P 500 was down 77 points, or 7.9 percent, with virtually every stock in the broader index losing ground Monday. The tech-heavy Nasdaq off just 3.82 percent.
Traders reported heavy trading volume, a reflection of pent-up fear as investors spent the weekend worried about fresh weaknesses in the global economy. Wall Street officially entered a technical “correction” on Friday — defined as a fall of at least 10 percent from its most recent peak.
The market losses and the larger “headwinds” facing China and the global economy have finally punctured the market’s “illusion of stability” that has kept the Dow at or near record levels for much of 2015, Charlie Bilello, director of research at Pension Partners, LLC, told CNBC. He predicted the markets would have difficulty fashioning another rally this time to restore stock to their previous highs.
U.S. investors woke Monday to sharp new losses on stock markets around the world. China’s Shanghai composite index fell 8.5 percent on Monday and the ripple effects were felt across the globe.
The Nikkei index in Japan lost 4.6 percent, as did the Stoxx Europe 50 index in Europe. Germany’s DAX index and France’s CAC-40 both were down about 5 percent.
The stock market fall led to a surge in interest in U.S. Treasury bonds, with the yield on the benchmark 10-year note briefly falling below 2 percent.
Several analysts say the market downturn could force the Federal Reserve to delay once again its plan to raise U.S. interest rates, which have been at near-zero since the 2008 global downturn.
“There is a realization that the global growth is not moving as quickly as expected,” Ernie Cecilia, chief investment officer of Bryn Mawr Trust, told the Reuters news service. “The market tends to overreact in either direction and needs to find a stable level before this rout can be stemmed. There is a lot of liquidity left and at some point investors will look at lowered valuations and step in.”
• David R. Sands can be reached at dsands@washingtontimes.com.
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