Why Global Fears Are Causing the Dow to Drop

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Another day, another drop in the Dow Jones Industrial Average (INDEX: ^DJI) that's largely attributable to worries over global growth. We've seen this story playing out across the week, and the Dow's drop actually trails the declines seen earlier in Europe. The FTSE 100 (INDEX: ^FTSE) dropped 0.79% during European trading, while the STOXX 50 (INDEX: ^STOXX50E) saw a 1.46% drop.

Pain in Europe
Europe's feeling the pain in particular today because of low numbers out of a survey of purchasing managers. The survey by Markit Economics came in at 48.7 in March after a reading of 49.3 in February. That's concerning because levels less than 50 show a decline in economic activity. Not only was the headline number bad on the survey, but it also showed a contraction in German manufacturing. Since Germany has been the engine powering Europe forward during the recession, that's a troubling sign.

More signs of worry in China
Concerns weren't just limited to Europe, though. Another purchasing manager survey on China's factories conducted by HSBC showed that Chinese manufacturing activity continues to shrink. The survey has been moving south for five months in a row. There's ample evidence that China's economy is slowing -- the question is, to what degree? China last reported GDP growth of 8.9%, and its growth looks to slip even further. The wrinkle is that at levels approaching China's stated target of 7.5%, the country would surely begin using some of the stimulus tools at its disposal. Long story short, while China looks set to see slowing growth, its growth is moving from a "blistering pace" to something "slightly less blistering." My guess is that if China's economy continues retreating, you'll see the country pull out some of the big guns to get the economy moving in the right direction.

Back home
Of course, if there's concerns over manufacturing in China, you can bet your bottom dollar that Caterpillar (NYS: CAT) and Alcoa (NYS: AA) will be feeling the pain. The two stocks, which are heavily dependent on China, are the two biggest Dow losers today. Both are down about 2.5% shortly before 2 p.m. EDT. Other losers are Chevron, which continues to feel the heat over an oil spill off Brazil, and Bank of America, which looks to be cooling off after posting a 74% gain already this year. Stocks that have rebounded the hardest usually see corresponding larger drops if the market stalls during a rally, so it's not surprising to see Bank of America down in a negative market day.

Keep searching for global opportunities
Even though investors might be running scared over China and other emerging economies today, there's a reason companies are seeing outsized growth around the world. In the past decade, emerging-market consumer spending grew 250%, leaving the growth rates of the U.S. and Europe in the dust. If you're an investor scanning the world for opportunities, look no further than our new report, "3 Companies Set to Dominate the World." In it, Fool analysts select three companies with an international growth opportunity that's simply stunning. The report is free but won't be available forever, so get your copy by clicking here today!

At the time this article was published Eric Bleeker owns shares of no company listed above. The Motley Fool owns shares of Bank of America. Motley Fool newsletter services have recommended buying shares of Chevron. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

 

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