On Monday, the Dow Jones index took a nosedive downhill, plunging 1,000 points, and slowly rising upwards later. Recovering slowly from the initial losses, the Dow Jones was then down by 140 points (below 1%), in a day of tempestuous trading. China’s economic climate has shook stock markets all over the world in its second week now. The S&P 500 went into correction mode due to a selling wave. In a matter of minutes, Dow Jones surged downwards to 1,089 points, becoming the biggest point loss in trading history, exceeding Flash Crash back in 2010.

Market strategists say this kind of panic-level was not observed in stock market for a long time.

The roots go back to Shanghai Composite dropping 8.5%, cleaning out its previous gains of this fiscal year. Apparently, the Chinese equity bubble exploded, resulting in a sluggish Chinese economy quicker than anticipated. Intense selloff ensued after China declared its productions had dropped down to lowest levels in six years.

Chinese financial crisis worries global stocks

Being the world’s second largest economy, China went through a phase of momentous growth during the last two decades, paving the way for a better global economy. Global growth relied heavily on China due to its reliance on raw materials such as oil, iron core and copper, especially for Brazil, a goldmine of natural resources.

China’s economic downturn is a grave source of concern for global investors.

Due to fear of sluggish Chinese economy, S&P 500 (composed of top American firms) went into correction phase, after a 10% slump. For the first time since 2011, Nasdaq and Dow Jones went into correction mode.

Stocks peaked at 200% after crisis

As a matter of fact, it’s worth noting that sharp declines arise after a period of remarkable bull-run for stock market. S&P 500 peaked at 220% after reaching rock-bottom at 666 during the period of recession in 2009. Analysts say correction mode will be beneficial for the overall stock market.

Thence, probability of a market collapse will be minimum in the future.

Oil marches downward

Crude oil has reached at $39/ barrel on Monday, a new low since the colossal 2009 collapse. This economic downturn has occurred at a time when supplies are high, but price has slumped. Additionally, the 10-year Treasury yield dropped down to 2%, a new low since April and signals investors seeking refuge of US government balance. Moreover, it also indicates that Federal Reserve will probably delay its spike in interest rate expected on September to a later month this year or next year.

Survival of bull market

This selloff has developed a void for investors to take a leap of faith. Markets will return to normalcy soon enough.

Compared to other markets, the American economy looks in good shape. It means the prevailing bull market will continue as it did six years back. For S&P 500 to be called a bear market, it would have to shut-down at 1,708 (20% slump). At present, S&P 500 stands at 1,934. On the other hand, Germany went into bear mode on Monday.

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