U.S. equities experienced a brutal tumble last week after more bad news emerged from China. For the week, the S&P 500 lost 5.96%, the Dow dropped 6.19%, and the NASDAQ fell 7.26%.
China's ongoing economic woes are causing major turmoil in stock markets around the world. Disappointing data from China included reports that factory activity dropped for the 10th consecutive month, squashing hopes of a 2016 resurgence.
In this week's update, we've compiled a list of questions and answers to help you make sense of last week's turmoil:
What do China's stock market problems mean for U.S. investors?
In short: not much. China's stock market halted twice last week when emergency "circuit breakers" kicked in to limit volatility. However, most U.S. investors are not directly invested in Chinese stocks and are not affected by their markets. Chinese stocks are notoriously volatile and have experienced flash crashes in the past.
Why did U.S. markets react badly to news from China?
We live in an interconnected world where information is transmitted instantly and market overreactions are common. Thursday's selloff came after the Chinese central bank announced yet another devaluation of the yuan, adding to investor fears about the health of the world's second-largest economy. The move could also spark a global currency war as other countries devalue their currencies to compete with cheaper Chinese goods.
The question on everyone's minds: How will China's slowdown affect the rest of the world? Investors see weakness in China and fear how it will affect U.S. corporations and our domestic economy. With the 2016 growth picture already modest, investors are poised to react negatively to any news that seems even slightly threatening.