The forces that crushed the Shanghai Composite by 8% and then major European indexes by 3% appear ready to spread to U.S. markets. A brutal open may be a sell-off of as much as 2.5%, based on Dow Jones Industrial Average and Nasdaq futures.
The question is whether the United States will hold the line with a recovery in stocks by noon, or whether the collapse will worsen.
On one side of the debate are the strength of the U.S. economy and the benefit of low oil prices. On the other are the effects of a weak economy in China and the fact that U.S. markets trade at high price-to-earnings (P/E) ratios. Certainly, the tech sector suffers from the P/E issues, as has been proven by the depth of the drop in these stocks last week.
While there is no evidence that this drop is anything like the one in 1987, it will be if shares collapse throughout the trading day.
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