August 25, 2015 – Yesterday, Wall Street experienced a history-making intraday point drop, its biggest ever as it dropped 1,089 points at the opening bell. According to Fox Business, by close of day, all three major U.S. averages were in correction territory, though well off session lows.

Traders raced into safe-haven assets as fears over the instability in China and other emerging markets mounted. Dubbed “Black Monday” in China, where Chinese stocks recorded their biggest slump in almost a decade, stock market jitters spread throughout the globe as stock markets in the United Kingdom, Germany, France, Italy, and Spain also plummeted. It was reported that China’s Shanghai Composite Index lost 8.5%. Japan, Korea, Hong Kong, and Australia all closed more than 4% down, while markets in Saudi Arabia, Dubai, Egypt, and Israel declined sharply.

Market analysts described the chaos as a “China-driven micro panic,” reporting that global equities have seen more than $5 trillion wiped from their value since China devalued its currency two weeks ago.

Some are calling the Black Monday panic irrational (the Dow managed to close with only a 195-point drop). Wall Street experts offered several reasons not to panic about the market’s downturn, but the lack of confidence among investors is troubling speculators, who began selling vulnerable assets.

According to Yahoo! Finance, Chinese stocks tumbled again this morning despite the rebound in other Asian markets, “as investors despaired at the lack of policy action from Beijing in response to recent data suggesting the downturn in the world’s second-largest economy is deepening.” Many analysts are predicting a continued deceleration, rather than a crash, for China’s economy, and are cautioning patience as companies reassure investors about the economy.

The overall effects, however, will ultimately be that investors will be more watchful with their investments, and many will perceive that caution as stunted growth. This market correction, however, is necessary every so often, as Chinese stocks have been wildly overvalued for a while.

Sources

“China’s ‘Black Monday’ felt on stock markets around the world.” News.com.AU. News.Com.AU, 25 August, 2015. Web. 25 August 2015.