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Market plunge driven by fearful investors fizzles in U.S.

August 24, 2015

U.S. stock markets sank in morning trading Monday in a wave of fear that circled the globe after a historic plunge in Chinese stocks.

At least on U.S. shores, the wave receded after the markets opened and traders—lulled by several years of steady gains in the market—remembered what it was like to get their feet wet.

The Dow Jones industrial average fell more than 1,000 points in early trading and the Standard & Poor's 500 index slid into "correction" territory—Wall Street jargon for a drop of 10 percent or more from a recent peak.

The major stock indexes then pared most of the losses that dented investment accounts by mid-morning. Treasurys surged as investors bought less risky assets.

"This seems like a fear-based correction, and I believe this is quite normal, outside of what is happening in the China market," said Rich Hummel, director of research for Columbus-based investment adviser Kirr Marbach & Co. LLC.

The stock market has been unusually placid and upward-trending for several years, after the big swings that characterized the post-rececession stock market in the late 2000s. Normally, investors see a correction every 18 months or so, Hummel said.

"We just haven't seen this for a few years, and people get used to that lack of volatility," he said. "Right now, phone calls from investors are picking up, and they're asking, 'What's going on here?'"

For the time being, Kirr Marbach isn't counseling investors to stray from their current strategies, Hummel said.

The Dow was down 185 points, or 1.3 percent, to 16,273 points as of 12:15 p.m. Eastern time. The S&P 500 dropped 28 points, or 1.4 percent, to 1,944. The Nasdaq composite fell 31 points, or 0.7 percent, to 4,672 points. The three indexes are down for the year.

The five Indiana companies with the largest market caps each had recovered by noon Monday to percentage losses in the low single digits: Eli Lilly and Co., down 2.5 percent to $82.39; Simon Property Group Inc., down 1.4 percent to $187.38; Anthem Inc., down 1.7 percent to $144.08; Cummins Inc., down 0.8 percent to $118.82; and Zimmer Biomet Holdings, down 3.1 percent to $101.24.

The biggest losers among Indiana companies on Monday morning included Emmis Communications Inc., down 14 percent to $1.10, and Noble Roman's Inc., down 5.6 percent to $1.50. Neither firm has significant exposure to international market currents.

Other Indiana firms with significant losses at noon included sporting-goods manufacturer and importer Escalade Inc., down 5.1 percent to $17.42, and Calumet Speciality Products Partners, a maker of oil-based products, down 4.5 percent to $24.07.

Heightened concern about a slowdown in China had already shaken markets around the world on Friday, driving the U.S. stock market sharply lower. A big sell-off in Chinese stocks on Monday caused the rout to continue.

That's left investors unsure of how to gauge which companies are might be a good bet to weather a slowdown in China.

"What's a company that's doing business with China actually worth right now? When you're not sure, you tend to sell," said JJ Kinahan, TD Ameritrade's chief strategist.

China's main index sank 8.5 percent amid fears over the health of the world's second-largest economy.

Oil prices, commodities and the currencies of many developing countries also tumbled on concerns that a sharp slowdown in China might hurt economic growth around the globe.

The market slide was broad. All the sectors in the S&P 500 headed lower, with energy stocks notching the biggest decline, 3.4 percent. Cabot Oil & Gas fell the most among stocks in the index, sliding $1.50, or 6.1 percent, to $22.90.

In Europe, Germany's DAX was down 3.8 percent, while the CAC-40 in France slid 4.6 percent. The FTSE 100 index of leading British shares dropped 3.9 percent.

The Shanghai index suffered its biggest percentage decline since February 2007, with many China-listed companies hitting their 10 percent downside limits. The benchmark has lost all of its gains for 2015, though it is still more than 40 percent above its level a year ago.

Underlying the gloom in China is the growing conviction that policymakers and regulators may lack the means to staunch the losses in that nation. The country is facing a slowdown in economic growth, the banking system is short of cash and investors are pulling money out of the country, experts note.

"There is a lot of fear in the markets," said Bernard Aw, market strategist at IG.

China's dimming outlook is drawing calls for more economic stimulus from Beijing, though earlier government efforts to stop the sell-off in stocks appear to have done little to stabilize markets.

The bloodletting spread across Asia earlier, where Japan's Nikkei fell 4.6 percent, its worst one-day drop since in over two and a half years. Hong Kong's Hang Seng index fell 5.2 percent, Australia's S&P ASX/200 slid 4.1 percent and South Korea's Kospi lost 2.5 percent.

Those declines followed tumbles over the weekend in emerging markets such as Egypt, Dubai and Saudi Arabia.

The panic has underscored the scale of the challenge for Chinese leaders in seeking to curb excess investment and guide the economy toward a more sustainable pace of growth.

"My biggest concern is that global growth momentum is very fragile. The most important step is to see China take further action to try to bring their economy to a 7 percent growth path," said Rajiv Biswas, Asia-Pacific chief economist for IHS.

In currency trading, the dollar was at 118.72 yen on Monday, down from 122.05 yen on Friday. The euro rose to $1.1568 from $1.1388. Currencies fell hard in developing economies—particularly those that rely heavily on the export of commodities and oil, both of which China is a big consumer. The Russian ruble dropped 2.3 percent to a seven-year low.

In commodity markets, benchmark U.S. crude dropped $1.6169 to $39.27 a barrel in New York. It fell 87 cents a barrel on Friday. Brent crude, a benchmark for international oils used by many U.S. refineries, fell $2.50 to $42.96 a barrel.

U.S. government bond prices rose. The yield on the 10-year Treasury note fell to 2 percent.

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