A nearly 600-point dive Monday by the Dow Jones industrial average, which came on the heels of sell-offs in global stock markets and punishing market declines last week, has unnerved investors and left them groping for answers.
Here are three key factors in the market's swoon, and three suggestions from investment managers about how to react:
China, the world's No. 2 economy, has driven global growth. Beijing's devaluation of the yuan last week sparked fears among investors that growth in China's economy was sharply slowing.
The U.S. Federal Reserve had been expected to tighten interest rates in mid-September in response to a strengthening U.S. economy. Irwin Kellner, chief economist for MarketWatch.com, said investors now are worrying that the Fed will not raise rates because of signs of economic weakness.
Crude oil futures fell below $39 per barrel Monday for the first time since February 2009. Cheap oil tends to boost economic activity, but hurts oil-producing regions and energy-sector stocks
Seasoned money managers warn that overheated emotions should not govern investment decisions. The "worst mistake an investor can make is to overreact and pull out of the market in fear," said Ed Slott, a tax and retirement planning adviser based in Rockville Centre and host of a popular PBS series on investing. "Long term, you always do better if you are in the market."
Slott said investing in equities isn't for the risk averse, and the market decline provides a gut check. Stock-market corrections can serve as "a reminder" to investors that they should examine their portfolios with a view toward diversifying their holdings.
Investors' time horizon matters. Jesse B. Mackey, chief investment officer at 4Thought Financial Group Inc. in Syosset, said how investors should respond to stock-market gyrations depends on their age. He said retirees and workers approaching retirement may want to shift some of their money from equities to bonds.
Young investors should consider buying stocks periodically instead of trying to time the market. "They should view this as an opportunity to increase the amount they are investing on a monthly basis rather than a lump sum once a year," Mackey said.