Dow drops over 200 points on global fears

Stocks got hit hard Thursday.

All the major indexes are in the red. The S&P 500 is down 1%, the Nasdaq dropped 1.7% and the Dow fell over 220 points. It’s a worrisome sign given that global stock markets, such as the U.K.’s benchmark index, has entered a correction — a 10% drop from its peak in just four months. The Dow is down 6% from its peak in May.

A few factors are driving the sell off Thursday.

1. Global slowdown fears

China’s economic slowdown and currency devaluation have investors worried that things could get worse as the year goes on.

Developing countries like Brazil and Russia, are struggling to revive their economies as their currencies depreciate dramatically against the dollar.

Brazil’s currency value has declined over 20% and Russia’s has fallen 40%, hurting imports and everyday citizens.

It’s a problem for America’s biggest companies. About 44% of the revenues from S&P 500 companies come from outside the United States, according to Scott Wren, senior global equity strategist at Wells Fargo Investment Institute.

“We’ve had some downgrades in global growth recently,” says Wren.

2. Uncertainty around the Fed’s timing.

America’s central bank hasn’t been particularly clear on its plans to raise its key interest rate. Many investors and economists had bet on a Federal Reserve rate hike in September.

But in the Fed’s minutes published Wednesday, the Fed’s committee members sent the market mixed messages.

On one hand, some committee members say the economy is almost ready for a rate hike. On the other, committee members cited increased concerns about the global economic outlook.

“It’s difficult to interpret what they’re going to do,” says Craig Hodges, chief investment officer at Hodges Capital in Dallas. “A lot of people are really looking forward to getting this Fed [rate hike] behind us.”

Some on Wall Street dub the Fed the “World’s Central Bank,” and the Fed is acutely aware that its action reverberate across global markets.

Wren and others now think the Fed might delay its long-anticipated rate hike until its December meeting.

3. Oil and commodities continue to slide.

Oil fell to a new, six-and-a-half year low Thursday morning before rallying up in the afternoon.

Not only is there an excess of oil globally, but China’s slowdown is driving a collapse in commodity prices. It has hurt many countries, whose economies are based on oil, metals and agriculture.

The commodity bust is bad news for the economic outlook for several countries and the American companies that do business there.

“There’s things out there to worry about,” says Hodges.

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