Investors should be prepared for stocks to fall even lower as volatility continues, Tom Hutchinson, senior editor of the Newsmax newsletter "The High Income Factor," told Newsmax TV.
“This isn't what the end of a drop looks like,” he told “Newsmax Now.”
“The past three days before today were the single worst three-day drop in terms of points in market history. It failed to answer that with a positive return today, so for that and other fundamental reasons, there's more on the downside here,” he said.
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To be sure, a rally in U.S. stocks evaporated in the minutes before the closing bell Tuesday, sending the Dow Jones industrial average down more than 200 points and extending Wall Street's losing streak to six days — the longest such stretch in more than three years, the AP reported.
The three major U.S. indexes have now lost ground six days in a row, with the Dow falling about 1,900 points over that period.
The S&P 500 is down 12 percent from its record close of 2,130.82 on May 21. That puts it in what Wall Street calls a "correction" — a drop of at least 10 percent from its most recent high. It is the S&P's first correction in nearly four years.
The last time the S&P declined six days straight was July 2012.
“It is a bit more serious than just a regular correction because the market's repricing,” he explained.
“With Chinese growth falling apart, it changes the dynamic because now the global economy can't help us out so the US economy has to move along pretty much on its own without the global economy, without any fiscal reforms from the government, and without the Fed," he said.
"So it's going to run on the fumes of the sweet spot of the recovery it's on for a while, but growth is going to be challenged and the market's going to reprice that.”
So just what happened to turn China so wrong so quickly?
"Basically, China grew at about over 10 percent for decades. Now they're the second-largest economy in the world. You just can't keep continuing to grow at that pace forever," he said.
"Obviously they have to reform and turn into a different type of economy and that's not a graceful process and who knows the angst they'll go through en route to that. So it's a process that will probably take them a decade," he said.
"What we're going to see in the meantime, who knows, but what we do know at this point is the growth is a lot less than what they said it was going to be," he said.
And, sorry to say, that triggers global ripple effects in the markets.
"With the growth not what we expected to be, the global economy's not what we expected it to be because China's responsible for half of GDP growth globally. So that hampers our recovery because now the global economy's going to be a headwind and not a tailwind and that lowers the prognosis for the second half of this year and into next year," he said.
(Newsmax wire services contributed to this report.)
About Tom Hutchinson
Tom Hutchinson is a member of the Newsmax Financial Brain Trust. Click Here to read more of his articles. He is also the editor of The High Income Factor. Discover more by Clicking Here Now.
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