Tumultuous day of trading sends stocks on roller coaster ride

After a midday recovery, U.S. stock markets dove once again. At close, the Dow Jones Industrial Average had lost nearly 600 points, and the S&P 500 and the NASDAQ lost roughly 4 percent. This follows a rough day of trading on Friday, during which the the Dow lost 531 points.

Stock markets had plummeted at opening this morning, with the Dow Jones Industrial Average falling more than 1,000 points, or 5 percent.

The market had rebounded and made back most of its gains by noon, but the recovery didn’t last long as the volatile trading continued.

Today’s upheaval comes after stocks nosedived in China Monday. By close, the Shanghai Composite Index lost 8.5 percent, erasing all gains they had made in the past year.

Global markets have been on a roller coaster ride for weeks, presumably over fears that China, for years the driver of global economic growth, was now going to be a drag on it. China abruptly devalued the yuan two weeks ago to make its products cheaper abroad, but that spurred further anxiety about the state of the country’s economy. And in June, after rising steeply in the past year, China’s stock market began to swoon, prompting the People’s Bank of China to step and try to support prices. It didn’t work, and the Shanghai Composite Index has lost nearly 40 percent since June.

“In came the fear that the Chinese government can’t control the market as well as they thought they could,” Scheherazade Rehman, professor of international finance/business and international affairs at George Washington University, explains. That uncertainty crept into the market, and says Rehman, the U.S.’s talk of raising interest rates to slow the American economy didn’t help.

On Thursday and Friday, investors continued to sell. “[The Chinese government] intervened and tried to stop the crisis, and when they could not, it just fueled the fire,” Rehman thinks.

Clearly, investors worldwide are worried. Not only does China’s devaluing currency spur concerns of a currency war (in which countries competing with China’s exports devalue their currencies to boost their own exports), but China had been the main driver of global economic growth since the Great Recession. China still claims a healthy 7 percent annual growth rate, but many economists wonder if it’s not much lower. And if China’s growth is stalling, global growth may as well.

The uncertainty about China’s economy has made its way into markets worldwide, including America’s. Of course, for all the opinionating about the whys and wherefores, no one ever really knows what drives markets, besides the dynamic duo of greed and fear. But why greed one month and fear the next? Or why greed this morning, when the Dow-Jones Industrial Average rallied by nearly 900 points, and fear this afternoon, when it shed 400 or so? Don’t ask. Or, if you insist on asking, don’t bet too heavily on the answers you get.

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