Why did the DOW Drop 279 points this weekend?
On Friday, the DOW and NASDAQ had one of their worst days of the year. There are many reasons for the drop, some of them good and some of them bad. The US Economy is still not
exactly where it was before the recession started, and although many people have returned to work there is still opportunity for improvement there. Oil prices continue to be very volatile, and Greece’s debt continues to weigh on the global economy.
Oil Prices
Perhaps the biggest economic story of the year is the vast free fall in oil prices. Since the people about nine months ago, oil prices have dropped by nearly half. There are some companies like Cracker Barrel or American Airlines that have benefited greatly from this move in oil. However, there are also many oil based companies who have had to lay off a good chunk of their workforce. The stock market tends to react negatively when there are large and volatile swings in the price of oil.
China’s Economy
In addition to the volatility in oil, China’s economy is continuing to weigh on the global economy as it slows down. There is some talk that China will decide to stimulate their economy, but the fact remains that their economy is simply not as strong as it needs to be right now.
US Dollar
Along with the price of oil going down, the US dollar has continued to increase in value relative to other countries from around the world. Although this is a good thing for a large portion of the US economy, many companies that do a lot of business overseas are actually hurt by a strong dollar. There are many examples of companies that have released earnings statements blaming
the currency value increase for why their performance is off the mark. If the US dollar continues to grow in value, these companies will have to continue to fight against that headwind.
Greece
Several years ago, the European Union decided to help out Greece with their debt. Although many nations around the world are struggling to manage their government debt, Greece seems to be having more issues than almost anyone. With their total debt now about twice that of their GDP, there is little hope for Greece to have a better economy without the help of the European Union.
Jonah Engler is an entrepreneur and a finance expert from New York City.