The U.S. took a sharp drop in the stock market following China’s plunge Monday, but it may not be as bad as it looks.
The Dow Jones Industrial average fell more than 1,000 points in early trading Monday morning, with the Standard and Poor’s 500 index dropping 4.5 percent.
Ty Pendergrass, financial advisor and regional manager for Argent Financial Group in Minden, says mortgage rates and interest rates might see a hike, but not a huge one.
“For the average person who has money invested in the domestic stock market, they’ve seen a decline of about 14 percent since Wednesday,” he said. “Most people don’t have all their money in the stock market. They have a percentage about 20 to 80 percent of their assets in the stock market, and the national average is about 40 to 50 percent. So they probably saw a decline of about seven percent.”
He says many who invest in the stock market have diverse portfolios, which means they won’t see as sharp a drop in their investments.
Mortgages and interest rates will be affected, but not those on fixed rates, he said.
“When it comes to interest rates, I don’t think we’re headed for 2008,” he said.
He explained in 2008, the Standard and Poor went down 45 percent, but he doesn’t see that happening again. In fact, it’s common for stocks to drop like this once in a while.
“The things that I read and the numbers that I look at indicate that we’re (not) headed for that kind of downturn,” he said. “The federal reserve has been talking about signaling that they’re looking at increasing the short term rates. The consensus is that if the feds start raising rates, which they will in either September or January, that it will not be huge moves, that it will be incremental. And really, that’s a sign of an improving economy.”
Even then, that might be put off until January 2016, instead of December.
The Chinese benchmark soared more than 150 percent starting late 2014 after state media said shares were inexpensive, which led investors to believe Beijing would shore up prices if needed. Prices faltered and then plunged after an unrelated change in banking regulations in June led investors to question whether Beijing’s support might be weakening. The market index fell 30 percent, prompting Beijing to intervene by barring big shareholders from selling and promising state-owned brokerages and pension funds would buy.
Pendergrass says even with the sharp drop in Chinese markets and the drop in domestic markets (U.S.), he says it doesn’t hold any bad news for home mortgages and credit cards.
He says there are a variety of opinions on why the Chinese markets dropped, saying some believe it’s due to slow growth in China.
“Some are concerned about global growth worries,” he said. “Some are worried about our domestic earnings and some are worried about the feds raising interest rates.”
Typically, since 1980, the market has pulled back about 14 percent per year, he says, and it’s been at least four years since the market has seen any kind of correction.
But it’s not all bad news.
“There are a lot of positive things going on in the economy when it comes to corporate earnings, the amount of cash that corporations have, household net worth is at an all-time high, consumer defaults (a percentage of their overall debt) is at an all-time low.”
So even though China’s markets are considered to be “crashing,” the U.S. is just undergoing a “correction.”
The Associated Press contributed to this report.