The Dow Jones industrial average lost 140 points yesterday, largely in response to a 5 percent loss in the Shanghai Composite Index, the index’s biggest loss in four years.
China’s latest economic indicators showed that the world’s largest economy is slowing down. This comes on the heels of a rough week last week when Ben Bernanke, chairman of the Federal Reserve Bank, said the bond buy-back programs could come to an end in the near future."
The rising bond yields are a signal from investors that they are not confident in the Fed’s policies and decisions.
When interest rates rise, “people believe the feds can’t get the job done,” said Christine Armstrong, senior vice president at Morgan Stanley. If the Fed cannot prevent another extended economic downturn, “it could be the beginning of a long-term trend that could be really bad.”
The performance of the stock market in the coming months largely will depend on the policy decisions made by the Fed, Armstrong said.
“The guys in charge have to be pretty firm,” she said.
Adding to domestic concerns is uncertainty in China’s economy, the world’s largest. The Shanghai Composite Index plunged yesterday.
“China really has kept us out of a global recession the past few years,” Armstrong said. “If they sneeze, the whole world could get pneumonia.”
The Dow, which finished at 14,659.56 points, is down 5.7 percent from its all-time high last month.
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