China drop shows U.S. vulnerable

Wall Street got a reality check this past week that U.S. investors remain vulnerable to global stock shocks.

Investors have been rolling along for nearly four years as major market indexes flexed toward record levels. Low volatility, a steady increase in stock value, and strong market fundamentals lulled investors into a false sense of security about their portfolios.

In fact, investors have for several years been able to shrug off recent emerging market volatility.

But all that changed with Tuesday’s 9 percent drop in China’s best-known index.

“This leaves us a little more vulnerable,” said Jack Ablin, chief economist for Harris Private Bank. “The markets are integrated, they’re global, and what we’ve come to learn is that a splash in China can create a tidal wave across the rest of the world.”

And, that tidal wave certainly pummeled U.S. investors on Tuesday when China’s downturn crossed borders. In the U.S., it came together with a weak government report on durable goods and on comments from former Federal Reserve Chairman Alan Greenspan about signals of a U.S. recession that rattled investors.

The once docile Dow Jones industrial average gasped – dropping as much as 546 points on Tuesday. Ablin, like other investors, said he was “surprised when it fell 250, and by 500 I was stunned.”