The US stock market plunged overnight. What could this mean for ASX shares?

On the back of an awful day’s trade for the US stock market, we consider what impact this might have on ASX shares

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While Australia slept last night, the US stock market faced a tough selloff for a variety of potential reasons.

Some media outlets have blamed the US stock market’s awful day’s trade on worries surrounding the Chinese property market. Others are pointing to uncertainty regarding an upcoming US Federal Reserve meeting or proposed tax increases and policy changes as the reason for the drop.

Whatever the reason, the Dow Jones Industrial Average (INDEXDJX: .DJI) fell 1.8%, or 614 points, overnight.

The S&P 500 (INDEXSP: .INX) also dropped 1.7%, or 75 points.

Additionally, the Nasdaq Composite Index CAD (INDEXNASDAQ: COMPCAD) plunged 2.2%, that’s 14,714 points.

So, what caused the US stock market’s suffering, and what does it mean for the ASX? Let’s take a look.

What sent the US stock market tumbling overnight?

The US stock market has taken a beating overnight with some pointing to a Chinese property giant as the major catalyst.

According to reporting by The Wall Street Journal (WSJ), the Hong Kong-listed China Evergrande Group might be to blame for the US stock market’s struggles.

The Evergrande share price plunged 10.2% overnight.

The outlet states the company, which has more debt than any other listed real estate development or management company, noted it was struggling last week.

The WSJ claims there’s a risk China’s government will let the company fail. Additionally, it stated Evergrande’s challenges may negatively affect the Chinese economy, thereby damaging other global economies in its wake.

However, as the Australian Financial Review (AFR) reports, some experts believe the US stock market is being hit by an overdue correction.

Other experts told the AFR the dip was exacerbated by deadlocks in US Congress and proposed tax increases. Additionally, some pointed to the US Federal Reserve’s upcoming November meeting as the cause of the selloff.

Either way, the ASX might be in for a day of carnage.

What does this mean for ASX shares?

As The Motley Fool Australia has previously reported, the ASX largely follows the US stock market’s activities.

There are ample reasons as to why this is the case. Here are 3 of big ones:

The New York Stock Exchange is the largest in the world, with the US’s NASDAQ exchange coming in second. Due to the amount of money that passes through these 2 exchanges, they have a huge global influence.

Further, plenty of investment and cultural sentiment overlaps between Australia and the US and it’s no different on our stock market.

Finally, 23.3% of all foreign investment into Australia in 2020 came from the US, according to the Department of Foreign Affairs and Trade. This likely solidifies the link between our economies and, as a result, our stock markets.

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The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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