Economists blame panic, overreaction for Monday’s Dow dive

Everyone was looking for someone or something to blame for Monday's market freefall

A Chinese investor monitors stock prices at a brokerage house in Beijing, Tuesday, Aug. 25, 2015. China's main stock market index has fallen for a fourth day, plunging 7.6 percent to an eight-month low. (AP Photo/Mark Schiefelbein)

SPRINGFIELD, Mass. (WWLP) – A historic drop on Wall Street Monday morning. The Dow dropped almost 11-hundred points in the first six minutes of trading. A different story Tuesday where stocks surged early, and then slumped in the afternoon.

There were a couple factors that may have contributed to Monday’s market panic; reaction to China devaluing their currency, and uncertainty here in the U.S. about whether interest rates will go up in September. Many investors then fell into a herd mentality.

Western New England economics professor Karl Petrick told 22News there are systems in place called stop loss orders; when a stock falls below a certain price, brokers are advised to sell. On Monday prices fell fast and early.

“What that big fall did was trigger a whole bunch of those stop loss commands, which means more selling, which pushes the price even lower,” Petrick said.

But this slowdown was made in China, and isn’t big enough to be a global event. Petrick said conditions were much more dire, for much longer leading into the Recession.

“It’s one of those quirky couple day corrections that happen, rather than the sign of an overall slowdown.”

Petrick added even though the economy in China might be slowing somewhat, it’s still growing fast compared to other countries. And because of the way prices fell, stocks like Apple and Best Buy were on the rebound as investors went back in to buy at those knocked down prices.

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