2 Reasons the Dow's Dropping Today
Shortly after 2 p.m. EDT, the Dow Jones (INDEX: ^DJI) had settled into a loss of 0.40% after opening the morning down sharply. Shortly after the open, the Dow had slumped 0.88% before rebounding across the day. That's a decent drop, but it pales in comparison to the 1.17% drop seen in Europe's FTSE 100 (INDEX: ^FTSE) .
So what's causing world indexes to drop today? There are two major comments surrounding China and its growth that seem to be primary culprits. BHP Billiton's president of iron ore commented that steel growth rates are flattening. Another reason for hand-wringing is that an official from the China Association of Automobile Manufacturers predicted auto sales growth will miss an 8% target, and could be even lower than 5%.
BHP's warning doesn't come as a huge surprise. It's long been known that China was trying to slow its overheated building boom to focus more on consumer spending as a means of driving GDP. A large slowdown in Chinese demand has already been priced into BHP and its peers, who have seen steep drops in their share price across the past year. The auto news is a little more disconcerting since it deals with lower spending from the consumers who are supposed to be picking up China's economic slack. The news pushed auto stocks particularly low at the market's open. General Motors (NYS: GM) slumped 3.1% shortly after the markets opened while Ford (NYS: F) slipped 1.9%. As the day has progressed, both stocks have bounced back.
In the long run, I think you'd have to be crazy to think China would travel on an unvarnished economic path to becoming the world's largest economy. Of course there will be some bumps in the road. The question is whether China can successfully navigate its property bubble problems while shifting more of its economic output to consumer spending. On days like today, it might feel like the answer is no. However, looking past the fear in the market over China today, the long-term opportunity remains in place.
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At the time this article was published Eric Bleeker owns shares of no company listed above. The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of General Motors and Ford Motor. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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