Why did SPY fall?
The SPDR S&P 500 ETF (SPY) and the Direxion Daily S&P500 Bull 3X ETF (SPXL) fell by 2.4% and 7.1%, respectively, on Thursday, January 7, 2016. All of SPY’s major component sectors remained in red for the second consecutive day.
The above graph shows the fall in all of SPY’s component sectors as of January 7.
Most of the sectors ended with a loss of around 2.0%. The technology, financial, material, and industrial sectors were hit the worst. US equities were hit by the sell-off in the Chinese stock market. It took place for the second time this week. Tradings were halted in the Shanghai Stock Exchange on Thursday. The shares fell by 7% in the first 30 minutes of trading. It triggered the circuit-breaker mechanism. It impacts the markets’ sentiments. The China Securities Regulatory Commission announced that the circuit-breaker mechanism will be temporarily suspended on Friday, January 8.
Impact on global markets
The number of decliners outnumbered SPY’s advancing stocks on Thursday, January 7. The fall in Chinese equities directly impacted industrial stocks like Joy Global (JOY), Fluor (FLR), Paccar (PCAR), Caterpillar (CAT), and Jacobs Engineering Group (JEC). They yielded -7.9%, -2.2%, -3.0%, -3.4%, and -2.7%, respectively, on the day.
China’s woes had a negative impact on stock markets across the world. The iShares MSCI Japan ETF (EWJ), the iShares MSCI Germany Index Fund (EWG), the iShares MSCI France Index ETF (EWQ), and the iShares MSCI UK ETF (EWU) fell by 1.5%, 2.0%, 1.4%, and 2.8%, respectively, on Thursday, January 7. The stock markets feared the global economic slowdown.
Next, we’ll look at how various market aspects responded to the sharp sell-off in China’s equity market.