Economy
3:56 pm
Fri January 24, 2014

Trouble In Emerging Markets Causes Stocks To Take A Tumble

Originally published on Fri January 24, 2014 6:29 pm

Transcript

MELISSA BLOCK, HOST:

Stock prices soared in the past year, but this was a rough week and prices really tumbled today. The Dow lost 318 points, the S&P 500 and the NASDAQ both fell 2.1 percent. This was part of a global sell-off, as investors focus on the growing financial turmoil in the developing world. NPR's Chris Arnold is following this and he joins me now. Chris, the year started off looking like the global economy was more stable. We didn't have a financial crisis unfolding somewhere. So what's going on now?

CHRIS ARNOLD, BYLINE: Right. Well, the last two days have definitely been bad for the stock market, and we haven't been used to seeing that for a while. But keep in mind that the Dow and the S&P were up a lot last year. The S&P was up 30 percent. The Dow was up 26.5 percent in a single year. That's just a huge move. So a couple of down days really shouldn't rattle people too much. A lot of analysts were saying, look, maybe it's an understandable pull back. And it's important to say that investors themselves were not panicking today. This was not people running around with their hands in the air and selling everything they had.

(LAUGHTER)

ARNOLD: That was not happening today. It's hard to say exactly why these things happen. But yesterday, one thing did happen, and China came out with a disappointing report on how its manufacturing economy was doing. That got a lot of attention. And then there's this concern, as you talked about, with slowing economies in emerging markets. That's Argentina, Brazil, Turkey, South Africa. Currencies there are getting very beat-up.

BLOCK: Yeah. And so even though the U.S. economy is recovering, Europe is doing a little better, a lot of concern that other economies around the world aren't doing as well as expected and especially China, right?

ARNOLD: Especially China. China is the second largest economy in the world. We've heard that before, but it's actually the first largest economy if you look at it as a goods producer. So the largest manufacturer of stuff might be making less stuff, and so that means it's going to be buying less raw materials. That spills out into emerging markets because they supply those raw materials. So you can see those things are tied together. There's also some thought that the U.S. Federal Reserve has been juicing up or over-caffeinating(ph) the U.S. stock market and emerging markets to some degree.

And so as the Fed pulls back on that stimulus, and it's been pulling back on that stimulus, that could cause some pain. But other people say, look, you know, we've been hearing about the Fed pulling back for so long. The market has to have digested this. People don't think, well, look, this has probably more to do with new news about China and emerging markets.

BLOCK: So those emerging markets are in trouble. But why would that trouble be causing stocks then in the U.S. to take this tumble?

ARNOLD: Well, some of this could be sort of technical, like investors lost a lot of money in emerging markets, so then they have to sell U.S. stocks. And, you know, there's a little bit of that going on. But I think the bigger thing is probably jitters that, look, U.S. companies do business abroad. And companies like John Deere Tractor and Caterpillar Tractor, they do a lot of business in developing countries, so their stocks got hit.

Obviously, it's a global economy. Things are connected. But the takeaway here, I think, should be that this is probably a small correction and not the start of some really unsettling, damaging crisis for the U.S. economy.

BLOCK: OK. Good to know, Chris. Thanks for the vote of confidence there.

ARNOLD: Thanks, Melissa.

BLOCK: NPR's Chris Arnold. Transcript provided by NPR, Copyright NPR.