What is Behind Stocks' Dive?

January 04, 2016Jan 04, 2016

The American stock markets greeted the New Year with a sharp drop. What made this more alarming is the fact that the US markets were just following the Chinese and European stock markets who also dropped sharply on Monday.

The real cause was the Chinese stock market, which dropped 7% in one day on Monday. 7% may not sound like a lot -- but for China or any large stock market, that translates into hundreds of billions of dollars.

The global stock markets are now extremely interconnected. Chinese companies sell much of their goods to the US and Europe. American companies, like Apple and Nike, do much of their business overseas. So when one of the big 3 -- America, China, and Europe -- sneezes, the others risk catching a cold.

Will this be a just temporary one day drop? Let's hope so! The stock market has done well overall in recent years, but there are underlying risks in the US economy as our administration continues to pile up hundreds of billions of dollars in new debt each year that must someday be paid.