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Stocks Take a Hard Hit Amid Worries over China, Mideast

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The first trading day of 2016 ended in a slump. Investors worldwide dumped shares throughout the day based on new fears of a Chinese economic slowdown as well as over fresh turmoil in the Middle East.

The Dow Jones industrials were down 276 points (1.6 percent) and the Nasdaq was down 104 points (2.1 percent). The S&P was also down at 1.5 percent.

China's main index fell 7 percent Monday, forcing an emergency trading suspension. European indexes have been down by 2 to 4 percent.

Economists say tensions between Saudi Arabia and Iran could end the season of low gas prices by causing a spike in oil.

Meanwhile, gunmaker stocks leapt forward. Shares of Smith & Wesson Holding Corp. and Sturm, Ruger & Co. are climbing.

The sales jump follows President Barack Obama's indication that he will use an executive order to enforce stricter gun control.

CBN News Financial Contributor Stephen Moore offered more insights to the market forecast.

Q: The DOW has been down more than 400 points today - a massive sell off. Why?
A: China's economy, which was once on steroids, is slowing dramatically. For 20 years it grew at 8 to 10 percent and now its growth is closer to 3 to 5 percent. That's still growth but much slower than the world economy is used to.

Also, China is slowing because it is still a centrally planned economy, and the Chinese still don't get the free market thing. Command and control are still fundamental to the Beijing leaders.

Meanwhile, circuit breakers on the Chinese stock market to prevent selling has added to a sense a widespread panic. When you forbid shareholders from selling their holdings, they spasm. Capital controls and circuit breakers are counterproductive. They should be repealed.

The rest of the world is slowing too. Brazil is a disaster. Europe can't get its welfare spending under control

Q: China stocks got hit hard. Is China's economy really slowing down? How would that affect the United States?
A: China's economic hiccups affect the world economy because it is the second largest economy in the world. It is a 1 billion-person market. When China falls down, U.S. exports to China collapse. Look at what has happened to tech stocks: down, down, down. 

Q: What about the situation between Saudi Arabia and Iran? How is that affecting the price of oil?
A: Saudi Arabia has been abandoned. That is the one foothold of strength in the Middle East outside of Israel. The low oil price has hurt the Saudis. But low oil prices helps the United States and almost all other nations.

One big question mark: When will the Saudis cut back production to increase the world price of oil? It hasn't happened for 18 months, which helps explain $1.89 gas at the pump.

Q: What's your view of the U.S. economy in the long run? Is this just a difficult time that will only  be temporary?
A: Obama is cheerleading the U.S. economy, but the performance is way below where we should be in this anemic recovery. We are at least $2 trillion behind where we should be.

Obama's regulatory, climate change, tax and health care policies are all impeding growth. Investment is very weak in United States right now.  I expect 2 percent growth for the next year, but we should be at 4 percent.

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