Dow drops 360 points as China anxiety roils the markets and strong U.S. retail sales heighten Fed concerns

U.S. stocks ended down on Tuesday as conflicting information on the strength of the American consumer and pessimistic reports about China’s economy added to the discussion about the Federal Reserve’s next move.

U.S. stocks ended down on Tuesday as conflicting information on the strength of the American consumer and pessimistic reports about China’s economy added to the discussion about the Federal Reserve’s next move. (Photo: Market Watch)

Investors in U.S. stock markets  affected by worries on collapsing Chinese economy

In a report from Market Watch, the S&P 500 closed 51.86 points or 1.16% lower at 4,437.86; the Dow Jones Industrial Average went down 361.24 points or 1.02% to 34,946.39; and the Nasdaq Composite fell 157.28 points or 1.14% to 13,631.05.

On Monday, the S&P 500 increased 26 points, or 0.58%, to 4490, the Nasdaq Composite increased 143 points, or 1.05%, to 13788, and the Dow Jones Industrial Average increased 26 points, or 0.07%, to 35308.

In addition to assessing what a strong consumer implies for the economy and the Fed’s interest rate policy, investors in U.S. stock markets were also affected by worries about a collapsing Chinese economy, which was once again depressing global risk appetite.

The world’s second-largest economy’s retail sales and industrial output in China grew less than anticipated in July, according to data released on Tuesday. The revelation comes as evidence of significant distress in the real estate sector emerge, triggering a series of interest rate cuts by the central bank in Beijing. The announcement came after other lately depressing data. Markets appeared to become even more uneasy as a result of the surprise monetary policy relaxation and the announcement that Chinese authorities would no longer disclose data on youth unemployment.

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Fears growing that China’s real estate market and economy be in worse shape

China is a major factor in the news that is causing Tuesday’s market decline, according to Morningstar’s chief U.S. market strategist David Sekera. Fears are growing that China’s real estate market and economy may be in worse shape than previously thought as a result of the country’s unexpected interest rate decrease.

In the meantime, July retail sales grew by 0.7%, beating the 0.4% projection. Auto sales excluded, they increased by 1%. Sales decreased in big-box merchants selling consumer electronics, furniture stores, and vehicle dealerships, indicating that the strength was not uniform.

Neel Kashkari, president of the Minneapolis Federal Reserve, stated that inflation is still too high. He said at a Tuesday morning event: “The question on my mind is: Have they done enough to actually drive inflation all the way back down to their 2% target?” Or do they need to exert themselves more?  Currently, Kashkari has a vote on the Fed’s interest rate committee.

Tuesday saw a decline in financial stock prices as well as Martin Gruenberg, chairman of the FDIC, warned that regional banks should be subject to stricter regulations. In addition, Fitch analyst Chris Wolfe stated that after posting a ratings watch in June, the debt rating agency may be obliged to downgrade numerous U.S. institutions. According to Wolfe in an interview with CNBC, if Fitch downgrades the sector by one notch to AA- from A+, it will have to review the ratings on more than 70 U.S. institutions it covers.

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