5 Reasons Stocks Are Tumbling Worldwide On 'Black Monday'

Or actually, four reasons and a shruggy face.

08/24/2015 10:37 am ET | Updated Aug 25, 2015

NEW YORK -- Wall Street woke up to, if not a Black Monday, at least a Blackish Monday. 

Markets around the world tumbled toward historic losses amid a toxic cocktail of financial volatility. As the global sell-off hacksawed European and Asian markets, U.S. traders braced for the worst. The New York Stock Exchange invoked the rarely used Rule 48, allowing stocks to open without any price indications.

But don't panic. The market is already correcting the reverse. And as Fusion's Kevin Roose aptly put it Monday morning:

Here are the major market woes troubling investors.

1. China's stock market is crashing.

The Shanghai Composite plummeted 8.5 percent on Monday, its biggest loss since 2007. The Chinese government has scrambled this month to come up with novel ways to allay investors' concerns, most notably by devaluing its currency, the yuan. Over the weekend, regulators took the extra step of allowing pension funds to invest in stocks for the first time. But evidently, the move was dismissed by traders.

2. Europe is facing its biggest losses since 2008.

The pan-European Stoxx 600 index, which includes 18 countries in the region, fell nearly 6 percent on Monday morning.


London's FTSE 100 stock index has plunged more than 5 percentage points.

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Germany's DAX index is down nearly 5 percent as technology companies took particularly brutal hits, including Dialog Semicon, Nokia and Alcatel-Lucent.

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France's CAC 40 index has sunk roughly 7 percent.


3. Oil hit a six-year low.

Middle Eastern stocks dropped as the price of a barrel of West Texas Intermediate fell to about $40 on Monday and Brent Crude sank to about $45. Stock markets in Saudi Arabia, Dubai, Abu Dhabi and Qatar -- all countries or city-states enriched by the fossil fuel -- crashed on Sunday.

But falling oil prices should, in theory, eventually have a neutralizing affect on the stock market. As The Huffington Post wrote last October, such circumstances are "both good news and bad news for consumers and the economy. Prices are falling partly because of worries about a global economic slowdown." And yet, falling oil prices provide a stimulus of over a trillion dollars to the global economy. So, "the bad news is that oil is falling just like the stock market. The good news is that falling oil prices can help keep things from getting worse."

4. The market, after years of huge gains, is correcting itself.

For the last six years, the stock market has been bullish. Prices soared as buyers, turned off from properties after the real estate market crash and wary of U.S. bonds because of low returns, invested in stocks. And what goes up, famously, must come down.

5. ¯\_(ツ)_/¯

All the above analysis aside, we can't really know for certain what causes the stock market to move. It's a reflection of people and algorithms responding to an information set that is, for any one individual, incomprehensibly vast. Yes, the market has been up, up and up for years, but that in and of itself is not a reason for it to have gone down in the past week. Sure, Greece is politically unstable. But that's sort of been its status quo for a while, and the U.S. stock market has done fine. The Chinese economy is probably cracking, but that's not necessarily a groundbreaking revelation (especially to sophisticated investors who have been able to see fissures emerging for at least a year). As for the Fed -- well, fretting about monetary policy's impact on stock prices has been a constant since the financial crisis (remember the Taper Tantrum of 2013?). 

All of the plausible reasons why the stock market has dived are just that: plausible. But there's no certainty in any of them, and hunting for causality in market movements can end up being an exercise in after-the-fact storytelling. It might not be true, but it can give you a (false) feeling of understanding.

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