2015 stock market selloff

The NASDAQ market display in Times Square in 2007, a year of financial turmoil

The 2015–2016 stock market selloff, instigated by global financial events, began in the United States on August 18, 2015, when the Dow Jones Industrial Average fell 33 points and gathered downward momentum over several days, which became a steep selloff on August 21, 2015, falling 531 points (3.12%) on that day.[1]

Wall Street suffered a major starting loss on Monday, August 24 as the Dow opened 1,000 points down. However, the index gained back some of what it had lost to close down 588 points for the day.[2] The Dow opened higher on Tuesday, August 25 but plunged again in the last hour of trading, leaving the Dow another 204 points off from the level at the start of the opening bell. U.S. markets recovered 4% the next day.

Background

A substantial concern leading to global market instability was the long-term monetary shortfall in Greece leading up to the Greek default on June 30 on an International Monetary Fund loan payment[3] but the decisive trigger for the end of the 2009-15 bull market was China's stock market crash that began that same June.[4]

From June 12 to August 24, the Shanghai Composite index shed 38% of its value, a percentage that Neil Irwin of the New York Times on August 24 called "staggering," especially in light of Chinese governmental efforts to stem the selloff. However, Irwin also pointed out that investor concerns over a perceived impending end to the U.S. Federal Reserve policy of quantitative easing played a major role in the ongoing downturn, along with the collapse of oil prices, which chokes off investment in emerging markets, causing resonating negative global financial effects.[5] Other issues include China devaluing its currency.[6]

The initial numbers

The Dow[7] peaked on May 27, 2015, at approximately 18,400[7] before slowly falling to a low of approx. 17,504 and then partially recovering to its secondary closing peak of 18,102 on July 16.[8]

The stock market slowly slid after that, reaching a low of 17,402.51. The NASDAQ peaked on July 17 at 5,219. Apple's stock peaked at $133.00 on February 20, reached $132.37 on July 20 and slid to $105 by August 21.[1]

The downturn

First plunge

Starting on August 18 (August 19 for the Dow) the selloff set a trend. The Dow fell 33 points,[7] (0.19%) and grew in momentum: -0.8% on August 19, -2.1% on August 20 and -3.12% (Dow) and -3.5% (Nasdaq) on August 21.

The Dow Jones fell 888 points during a two-day period, 1300 points from August 18–21.

Black Monday

On Monday, August 24, world stock markets were down substantially, wiping out all gains made in 2015, with interlinked drops in commodities such as oil, which hit a six-year price low, copper, and most of Asian currencies, but the Japanese Yen, losing value against the United States Dollar. With the stock market plunge on Monday, an estimated ten trillion dollars had been wiped off the books on global markets since June 3.[9]

The 8 percent drop in China on August 24 was termed "Black Monday" by the Chinese state media.[10] The term gained wide usage in the next 48 hours.[11]

In India, the Sensex recorded its biggest single-day fall of 1,624.51 points on August 24, ending the day -5.94%. Indian investors registered losses worth over ₹7 lakh crore (₹7 trillion (US$100 billion)).[12]

In Europe, the main stock markets dropped at least 3% on August 24. The FTSE lost -4.4% (£78bn) but upon opening on August 25, shot up 116 points (1.97%).[13][14]

The Dow Jones opened 1,000 points lower on August 24, but gained nearly half of it back in the first 30 minutes. The New York Times used the term "upheaval" to describe the market situation.[15] It remained down 588 points at the close of trading. Hedge funds, which, for the most part, had long positions on the eve of the downturn, suffered substantial losses as stocks such as Apple, Citigroup, Facebook and Amazon lost value.[16]

Continued losses on global stock markets

Tuesday August 25 was another day of sharp losses on the Shanghai composite index, which dropped 7.6%, making a 40% downturn in the market since June.[17] The two day loss for the Shanghai composite was over 15%.[18] The Indian Sensex fell 1,600 points on August 24[19] as the rupee fell to 66.69 per dollar.[19][20] It partially recovered before falling 77.24 points on August 31.

In other trading on the 25th, Asian and European markets finished higher, and the day began with a major 440 point upsurge for the Dow; however, the gains turned to losses, with the Dow plunging in the final hour to lose over 200 points for the day, or an overall loss of another 1.3%.[21][22]

On Wednesday August 26 the Shanghai composite index swung widely and ended down another 1.3%. This was in spite of a cut in the borrowing rate in China. Late the previous day, it was announced that the Chinese legal authorities were investigating Citic Securities, the largest brokerage in the country, for possible lawbreaking in the trading of securities.[23] In addition to eight executives at the firm under scrutiny, a news reporter and members of the China Securities Regulatory Commission were reportedly taken into custody.[24]

Late-August turnaround

In later trading on August 26, the U.S. markets rallied, with the three major indexes, the Dow, NASDAQ and the S&P 500 all registering gains of about 4%.[25] For Dow, it was the third largest stock market rally in its history[26] The Dow also rose another 319 points on August 27, causing the aforementioned record to be set.[26] However, on August 28, the Dow Jones fell 11 points to 16,643.01.[7]

September

On the following Tuesday, September 1, the SSE Composite index in Shanghai was off 1.23%, Britain's FTSE dropped 3% and the German DAX index was off 2.4%. In the U.S, the Dow dropped to 16,058.35 points (2.8%) and the Nasdaq fell 140.40 (2.9%). But most markets recovered the next day, Sept. 2.

On September 18, 2015, the DJIA plunged 290 points after a brief and partial multi-week recovery (the Dow had partially recovered (16,700) and so had the Nasdaq.) to 16,384. Other selloffs occurred around the world. The Nasdaq fell 70 points, the FTSE 100 65 and the Nikkei 225 362. The reason was the Fed not hiking interest rates at the September 16–18 meeting.[27]

World stock markets continued to fall, with the Dow down to 16,004 by September 29, 2015. This, coupled with other stocks (FTSE100, Hang Seng Index, Nikkei) falling the same or more, set the stage for billions to be lost.

2016

Due to crude oil falling below $27 a barrel,[28] on January 20, 2016, the Dow fell 249 points (565 intraday).[28] The FTSE 100 entered bear market territory as it fell 3.62% in a single day, as well as several other European markets.[29]

Reactions

Several politicians have indicated strong personal opinions about the stock market selloff. Speaking on August 24, German chancellor Angela Merkel and France's President François Hollande described the world economy as "solid" and expressed confidence that the China market crash and subsequent market swings would ease up. Merkel stated "China will do everything in its power to stabilize the economic situation."[30]

On the other hand, U.S. businessman and candidate for the Republican presidential nomination Donald Trump stated on August 24 that he felt that the stock selloff could get "messy", and Trump was critical of policies that bound the Chinese and U.S. economies together.[31] Also on the 24th, a fellow candidate for the Republican nomination, Chris Christie, blamed President Obama for borrowing too much money from China, saying that the U.S. and Chinese economy had become "interdependent". Christie commented figuratively that "If the Chinese get a cough, we get the flu." [32]

References

  1. 1 2 Shan Li; Andrea Chang; Paresh Dave (August 21, 2015). "Stock market suffers worst one-day drop since 2008". Los Angeles Times. Retrieved August 24, 2015.
  2. ↑ "customRangeStart":1440054000,"customRangeEnd":1440399600,"range":"custom","allowChartStacking":true} "DJI Interactive Stock Quote". Yahoo Finance. Yahoo! Inc. August 24, 2015. Retrieved August 24, 2015.
  3. ↑ "European stocks drop on Greece fears.". June 29, 2015. Retrieved August 22, 2015.
  4. ↑ "Chinese stock market crash causes American and European stock market crash". August 21, 2015. Retrieved August 22, 2015.
  5. ↑ Irwin, Neil (August 24, 2015). "Why the Stock Market Is So Turbulent". The New York Times. Retrieved August 24, 2015.
  6. ↑ "China devalues currency by 1.9%". BBC News. 11 August 2015. Retrieved 25 August 2015.
  7. 1 2 3 4 "Dow Jones values historical and today". CNN Money. August 21, 2015. Retrieved August 22, 2015.
  8. ↑ "Dow Jones interactive chart". Bloomberg. Retrieved August 22, 2015.
  9. ↑ Popper, Nathaniel; Gough, Neil (August 23, 2015). "Global Stocks Tumble Further Amid Doubts About China". New York Times. Retrieved August 24, 2015.
  10. ↑ "markets lose ground amid ‘Black Monday’ for Shanghai index". Washington Post. Retrieved August 24, 2015.
  11. ↑ "Black Monday and Tumble Tuesday: How China reacted". BBC. Retrieved August 24, 2015.
  12. ↑ Mehra, Puja; Ninan, Oommen A. "Sensex crashes 1,624 points; investors lose over ₹7 lakh cr.". Chennai, India: The Hindu. Retrieved August 24, 2015.
  13. ↑ Exchange, London Stock (25 August 2015). "London Stock Exchange - FTSE Values". London Stock Exchange. London Stock Exchange. Retrieved 25 August 2015.
  14. ↑ Smout, Alistair (August 21, 2015). "European stocks suffer worst 1-day fall in nearly 4 years". Reuters. Retrieved August 24, 2015.
  15. ↑ Popper, Nathaniel; Gough, Neil (August 23, 2015). "Stocks Off Sharply as Market Upheaval Grows". New York Times. Retrieved August 24, 2015.
  16. ↑ Alexandra Stevenson and Matthew Goldstein (August 24, 2015). "A Stock Market Rout in a Month That Hedge Funds Would Sooner Forget". The New York Times. Retrieved August 25, 2015. Hedge funds went into the sell-off bullish, with $1.5 trillion in long positions — bets that stocks will rise in price...
  17. ↑ "U.S. stocks, after surging to start the day, end with a thud". The Los Angeles Times. August 25, 2015. Retrieved August 25, 2015.
  18. ↑ "Chinese stocks got obliterated again on Tuesday". Businessinsider.com. Retrieved August 25, 2015.
  19. 1 2 "Indian Sensex Factors for falling -1600 points...". 24 August 2015. Retrieved 31 August 2015.
  20. ↑ "Sensex values historical". BSE India. Retrieved 31 August 2015.
  21. ↑ "U.S. stocks stage dramatic reversal, erasing rally and raising new fears". The Washington Post. Retrieved August 25, 2015.
  22. ↑ Jackson, Anna-Louise (August 25, 2015). "China Anxiety Resurfaces to Torpedo Relief Rally in U.S. Stocks". Bloomberg.com. Retrieved August 25, 2015.
  23. ↑ Eavis, Peter (August 26, 2015). "Steep Swings for Chinese Shares as Global Markets Turn Mixed". New York Times. Retrieved August 26, 2015.
  24. ↑ Gough, Neil (August 26, 2015). "As Markets Flail, China Investigates Large Brokerage Firms". New York Times. Retrieved August 26, 2015.
  25. ↑ "Wall Street chalks up biggest gain in four years". Reuters. August 26, 2015. Retrieved August 26, 2015.
  26. 1 2 "CNN: Dow rises 900 points in 2 days". CNN. 27 August 2015. Retrieved 28 August 2015.
  27. ↑ "US stocks pelted, Dow off 300 points as Fed uncertanity weighs". CNBC. 18 September 2015. Retrieved 20 September 2015.
  28. 1 2 "From horrible to just bad: Dow ends down 249 points". CNN. 21 January 2016. Retrieved 24 March 2016.
  29. ↑ "London's FTSE 100 Enters Bear Market, in Five Charts". Bloomberg. 21 January 2016. Retrieved 24 March 2016.
  30. ↑ "Germany’s Merkel: No Threat to Global Economy From Stock Slump". The Wall Stree Journal. August 24, 2015. Retrieved August 25, 2015.
  31. ↑ "Donald Trump on market crash: 'This could get very messy!'". CNN.com. Retrieved August 25, 2015.
  32. ↑ "Christie slams Obama's ties to China amid stock market fall". CNN.com. August 24, 2015. Retrieved August 25, 2015.

See also

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