Dow Dives 178 Points on China Interest Rate Hike Fears

stock exchange traderThe Dow tumbled Tuesday as part of a global sell-off in stocks fueled by further speculation that China will hike interest rates to fight inflation. Renewed worries over the wobbly finances of Ireland, Portugal and Greece as weighed on equities. The dollar spiked and commodities such as gold, oil and copper plunged.

The Dow Jones Industrial Average ($INDU) lost 178 points, or 1.6%, to close at 11,024.The blue-chip index fell as much as 223 points to drop below 11,000 at one point in the session.

The broader S&P 500 ($INX) declined 19 points, or 1.6%, to finish at 1,178. The tech-heavy Nasdaq Composite ($COMPX) shed 44 points, or 1.8%, to settle at 2,470.

Markets tumbled in Asia overnight after South Korea raised interest rates, feeding anxiety that China could soon follow. Given that China is the largest driver of the global economic recovery, a slowdown in its economic growth rate could leave Wall Street's earlier corporate profit forecasts looking too optimistic.

Retail Holds On, Commodities Dip

Meanwhile, fears that sovereign debt crises are worsening in Ireland, Portugal and Spain added to the selling pressure in Europe, even after Ireland's premier tried to stabilize financial markets by saying his government hasn't asked for a bailout.

But the potential for reduced demand from China weighed heaviest, especially on basic materials and energy stocks, and commodities in general. Aluminum-maker Alcoa (AA), conglomerate 3M (MMM) and energy giants Exxon Mobil (XOM) and Chevron (CVX) were among the Dow's worst-performing components Tuesday.

If there was any strength in stocks, it was to be found in retail shares. Wal-Mart (WMT) and Home Depot (HD) were the only Dow stocks to post gains Tuesday, boosted by better than expected third quarter earnings results.

As for commodities, gold fell to nearly a two-week low, losing 2%, or $27.80, to $1,341 on the Comex division of the New York Mercantile Exchange (CME). Silver lost 3.3% and copper tumbled almost 5%. Crude oil declined 3.1%, or $2.60, to $82.26 a barrel.

If the Dollar Is Up, Stocks Are Down

As has been the correlation for months, the dollar rose as stocks and commodities fell. China worries and European debt fears pushed the dollar index to nearly a two-month high. That reversal is significant because a key to the market's remarkable rally from late August through early November had been a rapidly depreciating dollar, says Joe Greco, managing director at Meridian Equity Partners.

Anticipation of the Federal Reserve's second round of quantitative easing brought a reprise of the reflation trade, where the dollar falls while prices for assets like stocks and commodities climb. "If you want to know what stocks are doing just look at the [dollar index]," Greco says.

The strong inverse correlation between the U.S. Dollar index and the S&P 500 is made pretty clear in the chart below. Notice that ever since the dollar reversed course in early November, stocks have been on an extended losing streak.

Although the dollar has seen a significant bounce over the last week and a half, so far, the action is merely a technical bounce from the bottom to the top of a longer downtrend channel, according to Bespoke Investment Group. But if the dollar can put up another day or two of gains, that downtrend will be broken.

"The action in the currency this week could be a key tell in how things might play out for the remainder of the year," Bespoke analysts say.

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Did you know Colgate toothpaste in Made in Mexico?? No you did not know because you never look at the packages or labels to see where what you buy is made. Little things add up fast. Buy Colgate and help eliminate USA jobs or buy another brand that is made here and help to create jobs___It is you choice. CONSUMERS are the Economy. How you spend your money can create or can give jobs away. But please____Don't cry when you cannot find a job and your children are starving to death when you are driving a foreign car, and you are wearing made in China clothing, made in Korea shoes and you buy food products made in France Italy, Mexico, Brazil etc.

November 17 2010 at 4:04 AM Report abuse +1 rate up rate down Reply
Samir semaan

With more forclosures looming in the hirizon the homebuilders will not progress and it will be staggering for the nexr five months and that is why the president must have a plan to tacle the deficit and the unemployment benefit that is the reality .

November 17 2010 at 1:24 AM Report abuse rate up rate down Reply

Masta Soetoro is the modern day "Snidley Whiplash"..If you dont give me the Deed to the Ranch, I'll throw you on the RR Tracks.

November 16 2010 at 8:44 PM Report abuse -2 rate up rate down Reply

The heir apparents keep blaming Dubya for being hand in hand with Big Biz...One Hundred and eleven Companies that have stock being sold and bought have asked for Obama Care exemptions...All were exempted. (something to think about.

November 16 2010 at 8:42 PM Report abuse -1 rate up rate down Reply

Sensationalism...The Medias way to get attention..148? BFD

November 16 2010 at 8:35 PM Report abuse rate up rate down Reply
Bob Bennett

The consequences of Mr. Obama's 10 day tour of Asia have come home to roost.

November 16 2010 at 6:21 PM Report abuse +3 rate up rate down Reply
2 replies to Bob Bennett's comment

If you had any brains you'd know this economy had nothing to do with Obama. These crooks on Wall St. have been slowly killing us since the Reagan Administration. The Deregulation of the Banking system was the worst thing we did. The next worst was to let them make themselves 'too big to fail.'

November 16 2010 at 7:01 PM Report abuse +1 rate up rate down Reply

I laugh hard when I hear the myopic syncophants give a pass to current politicians by blaming all our problems on the previous administration. I'd like to be able to laugh when this absured argument is extended to politicians of 30 years prior, but such stupidity is just too mind-numbing to be able to laugh. All I can say is, congratulations to your lobotomist.

November 16 2010 at 7:14 PM Report abuse +1 rate up rate down Reply
Bob Bennett

The consequences of Mr. Obama's 10 day tour of Asia have come home to roost.

November 16 2010 at 6:21 PM Report abuse -1 rate up rate down Reply

Investors need to worry less about China and more about the incoming Republicans. Hold on tight, it's going to be a bumpy ride:"DOWN".

November 16 2010 at 6:08 PM Report abuse -1 rate up rate down Reply
1 reply to pkh632's comment

No doubt the Right Wing of The Party of Big Government represents a material threat to the well-being of all Americans. Just no more so than does the Left Wing of The Party of Big Government. The primary risk is not the sibling rivalry between the clashing Wings. It is their overarching agreement that The Party of Big Government can run our lives better than we can. What investors (and non-investors, although there are few) should worry about is politicians from both Wings intent on killing off American exceptionalism borne of freedom.

November 16 2010 at 7:41 PM Report abuse rate up rate down Reply

America has long passed the "tipping point" and will continue toward third world status. Yes, we can still kill more people on the planet with our weapons. We have allowed the wealthy to continue to ruin the middle class. Our fake politicians in Cogress are a sick joke!

November 16 2010 at 6:02 PM Report abuse +1 rate up rate down Reply
Ray and Carmen

I am a novice when it comes to understanding the United States precarious situation in the world. I think many people are because it is new territory to see this powerhouse of a country controlled like a puppet on a string by China. I am not sure what America has to do to free itself of a tital wave of Chinese made products but I think we had better do it. China is not a friend. We need to get jobs back in the United States of America. Manufacturing jobs for televisions, DVD players, clothes, shoes, kitchen appliances and audio systems. The ability to find American made for any of these items is almost non-existent. If doing this requires a higher price then so be it. Re-open the companies that used to manufacture these items. No Unions for these new jobs until it can be proven that the management is treating the worker unfairly. Offer tax deductions for families that can prove they are buying American. Open up some of these manufacturing plants within prisons, offering non violent crimals reduction in sentence for putting out good work. Open an annex to the prison factory outside the walls, and employ this factory with inmates who are released. We live in a race with the Joneses and this cycle has got to be broken and replaced with a new mantra that underscores the philosphy of, "If you can't afford an item, then you don't get it" If we do even some of this the unemployment is going to drop, repeat offenders to prison will drop, dependence on China will drop and we will once again be a more unified country

November 16 2010 at 5:33 PM Report abuse +4 rate up rate down Reply
1 reply to Ray and Carmen's comment

The reason people buy products manufactured in China is because in some areas China has a comparative advantage over the US. Of course, in other areas the US has a comparative advantage over China, which means in these areas US workers are employed making products for Chinese consumers. In doing so, the living standard of both Americans and Chinese are increased by freeing up resources that would otherwise need to be directed to the respective less efficient domestic producers. Maybe you should have stopped with, "I am a novice"?

November 16 2010 at 7:25 PM Report abuse -1 rate up rate down Reply