In an interconnected world a strengthening U.S. economy may be hurt by events overseas. According to The Wall Street Journal U.S. stocks tumbled, again due to weak manufacturing data reported from China.
U.S. stocks tumbled Tuesday after weak manufacturing data in China fueled investors’ worries about the world’s second-largest economy.
The Dow Jones Industrial Average fell 369 points, or 2.2%, to 16159 in early trade. The S&P 500 declined 2.2% and the Nasdaq Composite fell 1.8%.
Shares in Europe and Asia posted losses. The price of oil, which had rallied in recent days, slumped.
To a degree trading U.S. stocks is trading a Chinese economic slowdown from a distance. If you want to make money in the market these days you need to pay attention to what is happening in China.
A Slowing Chinese Economy
Reuters writes about China worries connect to a slump in factory production.
The S&P 500 fell more than 2 percent as surveys showed China’s manufacturing sector shrinking at its fastest pace in three years and its services sector also cooling.
Oil prices initially fell more than 4 percent after rallying more than 8 percent on Monday.
“With the weak data coming out, we’re going to see the negative sentiment from the last few weeks continuing,” said Joe Rundle, a senior sales trader at ETX Capital.
The Chinese economy has grown dramatically for four decades, commonly in double digits year after year. This grown has been based on investment in industrial production, a weak currency and affluent buyers in North America and Europe. Now, as Europe struggles to get back on its feet and the USA is slowly recovering the markets for Chinese goods is not keeping up with the pace of Chinese factory building. China needs to convert from an export driven economy to one driven by internal markets. And they need to quit lending money for more and more construction of factories that are not productive and whole cities that are virtually empty. The result will be a slower growing economy and a lower demand for raw materials from countries like Australia and Brazil. The price of oil is likely to stay low for years as the second largest consumer in the world cuts back. Trading of US stocks will always need to take into account the Chinese economic slowdown and its effects on the US economy.
Winners and Losers
The Wall Street Journal comments on winners and losers from the current China economic upheaval.
The China economic slowdown that has rattled global markets is also shaking the fortunes of multinationals that do business here.
Those that fed China’s traditional boom industries of infrastructure, energy and steel-like Anglo-Australian miner BHP Billiton Ltd. and French energy-equipment maker Schneider Electric SE-are suffering precipitous falls in revenue there after years when their profits were boosted by the country’s 10%-plus economic growth. Many also face heavy write-downs as investment plans predicated on surging China demand look increasingly unrealistic as the country’s growth slows.
In contrast, companies like iPhone maker Apple Inc. and luggage maker Samsonite International SA that cater to China’s consumers are faring much better as retail demand overall remains strong.
Trading a Chinese economic slowdown via the US stock market offers two possibilities. One is to short the commodity stocks and buy consumer stocks like Apple or P&G. The other is to simply use technical analysis and trade on days of high volatility in the US markets. These are commonly the days after China’s market goes up or down dramatically.