In case you somehow managed to avoid the news and all forms of social media yesterday, here’s what you missed: the Dow Jones Industrial Average plummeted by 1,000 points at the opening bell of the stock market, causing plenty of ensuing chaos in the business world. The nosedive was in reaction to China’s devaluation of its currency, the Renminbi. But the goings-on on Wall Street are not cause for immediate panic here in Westchester, says Manhattanville College School of Business faculty member Gary Jacobi, who is also founder and CEO of Arctic Wolf Capital.
So, what the heck happened yesterday? What caused the 1,000-point drop in the Dow Jones?
 Gary Jacobi |
There are two basic things that precipitated this: First is China and its uncertainty, coupled with fear that the Chinese market is slowing down. China is the world’s second-largest economy but unlike Japan, the US, and the UK, no one really knows what’s going on in China. So China cuts their currency, making it cheaper for us to buy sneakers and flat-screen TVs that are made in China… but it sets the tone for people to be worried that their economy is slowed and that will ripple through to the US. The second thing is that the market has had a great run, so if you’re up 30, 40, or 50 percent in a stock—like an AT&T, IBM, JP Morgan, etc—you get a little nervous yesterday, you sell it. So those factors really roiled the market and set the stage for what happened.
It was the largest market swing we’ve experienced since the time of the 2008 Recession—should we be worried that this could be the start of another potential Recession?
Not for the US, not at all. One of the reasons I personally don’t feel that way is because the US Federal Reserve, along with the Japanese Central Bank and the European Central Bank are all working in concert to keep the economy strong. These central banks will continue to act to strengthen the economy and provide ample liquidity. Also, we have record-low interest rates and the Fed is expected to continue to keep interest rates low into 2016. We are midway through the third quarter and we continue to see strong auto sales from US, German, and Japanese automakers; home sales have held up well—especially here in Westchester, which is a microcosm of the New York Metro area which is one of the engines that drives the US. Plus, all of our blue-chip companies are continuing to raise money at record low rates to fund expansions.
Do you expect to see immediate short-term effects from the market drop and China’s currency issues?
In the short-term, we will continue to see volatility in the market–we’re having a strong up day today–volatility will continue to stay heightened as the market continues to overreact to news. Also, the unknowns in China will not go away so investors who want to invest in emerging markets should expect continued volatility because we don’t know what’s going on there. But I don’t expect much else in the short term. This is not going to change rates for home equity lines or new car loans, will not significantly impact prices at the grocery store or anywhere else.
If I’m a small business owner in Westchester, should I be concerned about what’s happening? What kind of impact will I feel?
Not much. If business owners are looking to borrow money, they should lock up any borrowings they need; take out a 5- or 7-year loan at low interest rate to make sure they have liquidity, and lock in for expansion. Local businesspeople should expect to continue to see a relatively robust business environment, despite these kinds of hiccups.
