World Bank Warns of Slowed Growth in China

Poor corporate growth in the United States hindered the stock market from rising on Monday. Coupled with weak economic growth in Asia, the world economy made investors wary of purchasing additional shares. The Dow Jones Industrial Average rose just 26.50 points to end at 13,583.65 while the Nasdaq dropped 23.84 points to 3112.35. Meanwhile, the Standard & Poor’s 500 Index lost 5.05 points to end at 1,455.38.

Third-Quarter Earnings Released

The release of third-quarter earnings will start on Tuesday with the aluminum maker, Alcoa. Many analysts believe that the Standard & Poor’s 500 Index will reflect an overall drop in profits. This would be the first time for it to post a quarterly decline in 11 quarters. Ironically, Tuesday will also be the five-year anniversary of record high closes for the S &P 500 and the Dow Jones Industrial Average. The Dow Jones is presently 4 percent below its peak while the S &P is 7 percent under its record high.

In the last year, the Dow Jones has risen 11 percent while the Standard & Poor’s 500 Index gained 16 percent. Investors now believe that the markets may face a temporary contraction since the gained so much in a short period of time. Continued economic problems in Europe, slowed growth in Asia and lowered profits in U.S. corporations have caused investors to question the gains made in the last year.

The World Bank fueled doubts over the stock market when it announced on Monday that there could be a more pronounced slowdown in Asian nations like China. As the second-largest economy, slowed growth in China would impact many of the world’s import and export markets. The World Bank also dropped their growth forecast for emerging markets in Asia.

The United States has benefited from the rise of Asian economies in the last few years. Despite several years of slowed growth, the United States managed to increase exports to consumers in Asia. Weakened growth in Asia could cause the economy in the United States to slow.

With the difficult market situation, stocks that depend on economic growth in areas like construction or technology dropped on Monday. Home Depot lost $1.32 to reach $61.88 while Intel dropped 17 cents to $22.51. Walt Disney shares fell 64 cents to reach $52.33.

Wal-Mart Starts New Pre-Paid Cards

On Monday, Wal-Mart announced that it would begin offering prepaid cards through American Express. These new payment options would offer no overdraft or recurring fees. Despite the news, Wal-Mart shares remained unchanged. Green Dot dropped $2.60 after the announcement to $10.25. As one of the leading purveyors of prepaid cards, Wal-Mart’s decision is expected to impact Green Dot’s profits for the upcoming fourth-quarter.

European Markets Drop

Markets in Europe closed lower than expected after the Monday trading session. The CAC-40 in France dropped 1.5 percent while the United Kingdom’s FTSE 100 fell 0.5 percent. In Germany, the DAX fell 1.4 percent. Losses in Europe can be attributed to the ongoing debt crisis in Europe. A meeting of finance ministers in the Eurozone resulted in no bailout deal. This meeting in Luxembourg released a statement that Spain did not yet need a bailout.

With the uncertainty surrounding European bailouts, the euro fell 0.5 percent versus the United States dollar to $1.2970. This drop comes after Friday hit a two-week high on Friday. Overall, investor sentiment in Europe has improved for the second month in a row due to fiscal easing measures and Germany’s support for the bailout fund. German exports also rose by 2.4 percent since last month. This news is a welcome surprise for investors since economists had previously believed that German export data would reflect a loss of 0.5 percent.

China’s Economy Slows

Many leading analysts are expecting an economic slowdown to occur in China. The World Bank led the forecast by stating on Monday that China is likely to have a worse and longer slowdown than expected. For the most part, investors believe that China will have a soft landing. Instead of 8.1 percent growth, the new forecast for China has been revised to just 7.7 percent for the year. This new forecast deflated the increase markets had enjoyed on Friday after the release of the United States unemployment rate.

Slowing economies around the world could potentially decrease demand for crude oil. With this in mind, Brent Crude oil prices dropped 20 cents to $111.82. At their lowest point on Monday, Brent was at $110.54. U.S. crude dropped for the second day in a row. By the end of the trading session, U.S. crude fell 55 cents to $89.33 a barrel.

Monday’s trading session saw 4.1 billion shares switch hands on the NYSE MKT, the New York Stock Exchange and the Nasdaq. On average, 6.54 billion shares have changed hands every day this year.

Indian Stocks Fall

Monday’s trading session saw Indian stocks fall by more than they have since the month of July. This was fueled by the release of erroneous orders on the S&P CNX Nifty Index. One of the world’s largest refining complexes, Reliance Industries, fell 4.5 percent following a downgrade by Morgan Stanley. At one point during the trading session, the gauge dropped 16 percent in eight seconds. In response, officials closed the stock market for 15 minutes to prevent further decreases.

The flash crash occurred after a dealer at Emkay Global Financial Services Ltd. committed 59 erroneous errors. This amounted to 6.5 billion rupees ($124 million) in unintended trades. Following the errors, the entire stock market dropped a total $58 billion in value. Continued incidents like this have caused many to question how electronic trading works. In the United States, high-frequency orders enhanced a flash crash that temporarily dropped the stock markets value by $862 billion. In May, the Nasdaq also struggled with problems canceling and confirming orders during the IPO for Facebook.  

Overall, the Nifty index dropped 1.2 percent to 5,676. October futures were at 5,697.75 while BSE-200 retreated 1.1 percent to 2,305.05. The BSE and the National Stock Exchange saw 1.3 billion shares switch hands on Monday which is higher than its 12-month daily average of 902 million.

About the Author
Marcus Holland is editor of the websites and He holds an Honors degree in Business and Finance and regularly contributes to various financial websites.

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