Market Turmoil: Dow Dives as Analysts Warn More Chaos Ahead

8/25/15
 
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from NBCNews,
8/25/15:

Stocks dived at the close on Tuesday, erasing a huge rally — and any hope that the worst of the Wall Street turmoil was over.

The market soared in early trading as investors shook off fears of a slowing Chinese economy and a further plunge in Asian stocks. The Dow Jones industrial average climbed as much as 442 points, or 1.9 percent.

But the gains slowly faded in the afternoon, and a last-minute sell-off left the Dow down 204. That came after a turbulent Monday, when the Dow plunged almost 1,100 points in the morning and closed down more than 500.

And analysts caution that the markets may not calm down anytime soon.

Investors are watching China closely because it’s a major engine of the world economy and a huge market for American products. Kamel Mellahi, a professor at the Warwick Business School, warned that the Chinese economy will be on a “bumpy road” for some time.

“What we are seeing now is a dress rehearsal,” he said.

Earlier Tuesday, China’s central bank cut interest rates for the fifth time in nine months in an effort to speed slowing growth, and its top economic official tried to dispel fears that the Chinese currency, the yuan, might lose more value.

Premier Li Keqiang, the country’s top economic official, said there was no basis for further declines in the yuan, also known as the renminbi. China surprised investors by devaluing the currency on Aug. 11.

China’s central bank announced the rate cut after Chinese stocks slumped 8 percent on Tuesday. That was on top of an 8.5 percent drop on Monday.

Xavier Smith, investment director at Centre Asset Management, said that the rally will only be sustainable when data show a healthier Chinese economy. For now, he said, the rate cut is “pretty meaningless.”

So brace yourself for more swings in the market, experts say.

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