Dow Jones Posts Highest Gains Since 2008

August 31, 2015

Dow Climbs Above 18,000 For First Time On Strong GDP Figures After nearly a week of turbulence following the devaluation of the Chinese Yuan and subsequent slowdown of Chinese markets, the Dow Jones Industrial Average gained 619 points on Wednesday, the highest daily gain since the financial crisis of 2008. This helped to balance a loss of more than 1100 points at the end of the last trading week. The NASDAQ and S&P 500 also posted substantial gains

The recent sudden insertion of liquidity into the stock markets by the government of China has caused much unrest in markets around the world. Besides the American indices, markets in Europe and Asia have also been hard hit by the uncertainty as the world’s second largest economy attempts to deal with the ramifications of an economic slowdown. Commodities, in particular, have been driven down in price as investors anticipate a reduced demand for raw materials in China.The scare, however, has created substantial opportunities for investors willing to ride the storm out. Following the mass drop in stock prices over the past week, a general perception that the market had over corrected for the Chinese slowdown led to the sudden jump on Wednesday. Hedge fund managers, in particular, seem to have recognized the opportunity and seized it, with many buying more aggressively than usual while share prices remain low.

Despite the Wednesday recovery of worldwide markets to a more reasonable level, concerns about the slowing growth of the Chinese economy remain prevalent. Chief among these worries is that by carefully controlling the value of the Yuan and inserting huge amounts of liquidity into its own stock market to prop up share prices, the Chinese government has obscured the real value of Chinese companies. It is, in the current market conditions, virtually impossible to tell which companies are performing well organically and which are not. Opinion also seems to be divided in China as to the best method of handling the slowdown, with president Xi Jinping and key aides, including prime minister Li Keqiang disagreeing over such matters as managing share prices and strategically devaluing the Yuan.

While the Wednesday climb seems to have somewhat stabilized world markets for the present, the long term effects of a general Chinese slowdown will depend entirely on the way in which that slowdown in handled. Even with the enormous rebound, most indices have still lost a substantial amount of share value, indicating that even the most optimistic investors see a period of reduced profits ahead.