LANSING, MI (WLNS) – The New Year has been a new low for recent market numbers.
Stocks and oil prices took another nose dive today as investors reacted to a massive drop in the Chinese stock market.
China’s currency plunged to its lowest value in nearly five years at the same time oil prices fell to their lowest point in more than a decade.
Thursday the stock market was down 390 points, ending the day at just over 16,500 points.
It’s worth mentioning, though, that back in 2009 the Dow’s average was at 6,500 and we’ve had a growth of 10,000 points in the Dow since then.
This is all driven by the fact that China’s government devalued its currency and the stock market here in the United States, reacted negatively.
As a result, major market indexes were down 2 percent in mid-afternoon trading.
But, we all know the phrase, “what goes up, must come down.”
Looking at this global issue here locally, financial analysts like Joe Smalley say even though it’s our first instinct to panic, don’t.
“These things happen markets are cyclical, today is a down day, but overall it’s to make sure that your investment philosophy is consistent with your long term goals, so using the downturn to your advantage is a good opportunity,” Smalley said.
Financial expert Joe Smalley says what we’re seeing here is a pull back from a high in the stock market and the Chinese economy is slowing down.
He says because the stock market is now global, whatever happens oversees, will impact markets here in the U.S. and vice versa.
“So today and this week has just been a following of what’s happening globally and that’s the global economy is slowing,” Smalley said.
If you’re an investor Smalley says the best thing to do is let go of any panic, everyone’s situation is unique, and depends on factors like timing and risk tolerance.
“If your time horizon is long this is a really good buying opportunity,” Smalley said. “So the biggest thing to do is to look at the portfolio, see what the goals are of each investor, and then figure out how this could play into the long term for the situation.”
For those who don’t invest, you may wonder how this could affect you, when the stock market goes down significantly for a long period of time, Smalley says often times see consumption decreases as well and that has a lot to do with the wealth effect; Meaning, when you have money, you spend it.
Smalley said not many young people invest in the stock market because of its volatility.
“A stock is simply an investment that carries risk, because of the fluctuation, not only in earnings, but also what’s going on in the global economy,” Smalley said. “So by investing in stocks, it should be a long term investment. It should not be something that people buy and sell based on one day event.”
During the financial crisis in 2009, the Federal Reserve lowered interest rates to try to boost the economy.
Last week, it raised interest rates for the first time in nine years and Smalley says that may also have had an impact on what happened in the stock market today.