Valley economist: Stock market drop will be short-lived

Jan 4, 2016, 11:06 AM

An investor places her leg on a bench near an electronic board displaying stock prices at a brokera...

An investor places her leg on a bench near an electronic board displaying stock prices at a brokerage house in Beijing, Monday, Jan. 4, 2016. Shanghai's stock index plunged nearly 7 percent on Monday, sparking a halt in trading of Chinese shares, after weak manufacturing data and Middle East tensions weighed on Asian markets. (AP Photo/Andy Wong)

(AP Photo/Andy Wong)

PHOENIX — A Phoenix-area economist said people shouldn’t overreact to the American stock market taking a plunge Monday after Chinese stocks did the same.

“What people need to pay attention to is, are we going to keep seeing this every couple of months,” Jim Rounds with the Rounds Consulting Group said.

Rounds said a similar drop happened last year and people panicked then.

“Are we going to hear more bad data globally, issues with Saudi Arabia and Iran? No one of these things will cause major problems in our economy, but once you start stacking them up, they could become an issue.”

Rounds told Arizona’s Morning News on KTAR News 92.3 FM people shouldn’t get too freaked out if the numbers take a tumble for a day.

“The Dow may drop 600 points and, two days later, it may come back by 300,” he said. “If the wind blows right to left instead of left to right, the Dow will drop 200 points in this cycle.”

The trouble started in China after weak manufacturing data in the world’s second-largest economy sent the Shanghai Composite Index plunging 6.9 percent to its lowest level in nearly three months.

The drop led stock markets in Shanghai and Shenzhen to halt trading for the remainder of Monday to avert steeper falls, the official Xinhua News Agency said. It was the first time China used the “circuit breaker” mechanism it announced late last year.

Chinese authorities have been trying for months to restore confidence in the country’s stocks after a plunge in June rattled global markets and prompted a panicked, multibillion-dollar government intervention. Beijing is gradually unwinding emergency controls that included a freeze on new stock offerings.

Traders were also unnerved by heightened tensions between Saudi Arabia, a huge oil supplier, and Iran. Saudi Arabia executed a prominent Shiite cleric, prompting protesters to set fire to the Saudi Embassy in Tehran.

In the U.S., the Dow Jones industrial average sank 384 points, or 2.2 percent, to 17,042 as of 12:44 p.m. Eastern time. The Standard & Poor’s 500 index lost 43 points, or 2.1 percent, to 2,000. The Nasdaq composite gave up 140 points, or 2.8 percent, to 4,867.

The drop in U.S. stocks sets the market up for its worse day since September and a gloomy start to the new year. Both the S&P 500 and the Dow indexes fell last year, the worst performance since the financial crisis in 2008.

The Associated Press contributed to this report.

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Valley economist: Stock market drop will be short-lived