Relief in U.S. Stocks Falls Amidst Resurfacing Anxiety over China’s Economy

by Dana Marie / Aug 26, 2015 07:03 AM EDT

Traders work on the floor of the New York Stock Exchange (NYSE) on August 25, 2015 in New York City. Following a day of steep drops in global markets, the Dow Jones industrial average rallied early in the day only to fall over 200 points at the close.

(Photo : By:Spencer Platt | Getty Images News) Traders work on the floor of the New York Stock Exchange (NYSE) on August 25, 2015 in New York City. Following a day of steep drops in global markets, the Dow Jones industrial average rallied early in the day only to fall over 200 points at the close.

The Dow Jones Industrial Average spiked by over 440 points, a rebound that made stockbrokers relieved. But the reprieve didn't last long because the points went down again as investors gave in to their fear - a chart phenomenon called 'retest'. There had been much anxiety on what would happen in China amid the most unstable equity market since 2011.

From 440 points, the 30-stock gauge went down to 204.91 points (1.3%) at 15,666.44 in New York. It was also 4% lower than the session high. The falling pattern surpassed the loss incurred on Monday's final trading hours, when worries over global economic growth triggered the worst drop in U.S. shares. In fact, over $2 trillion was lost since Wednesday, disrupting a once calm market.

The Standard & Poor's 500 Index fell to 1.4% at 1,867.61 during closing. So far, it lost 11% within five days, which was the worst since August 2011. Among the S&P 500 industries with the biggest losses were phone companies, utilities, banks and commodity shares.

"People are nervous about the potential volatility that could erupt or resurface in the market." Williams Capital Group LP's principal equity trader, Stephen Carl, commented on the crisis.

"They're not sure what's going to happen overseas, and that uncertainty is winning out."

The turnaround disappointed optimistic traders who hoped that China's efforts could trigger positive movements. On the other hand, the central bank decided to lower interest rates, which it had been doing since November, to prevent from falling with the deepening economic problem. It also lowered cash amounts, which banks need to set aside.

According to Walter Hellwig, BB&T Wealth Management's senior vice president, "Investors are going to be keeping a keen eye on the Asian markets overnight and how they react to the rate cut." He stated that the market's weak final hour wasn't a good indication.

Amidst the crisis, investors continued to watch out for clues from economic reports, hoping that the Federal Reserve would increase interest rates. On the other hand, new data showed a boost in the real estate market due to new home purchases. Another report also showed rising consumer confidence, which was more than the anticipated percentage. There was especially high satisfactory perception of the labor market.