Stocks brace for selloff
After China's latest tumble and Hewlett-Packard's profit drop, U.S. investors are expected to cash in recent gains.
NEW YORK (CNNMoney.com) -- U.S. stocks were set to open lower Wednesday as another selloff in Chinese shares rattled investors.
At 9:02 a.m. ET, Dow Jones industrial average, Nasdaq 100 and Standard & Poor's 500 futures were sharply lower.
Futures measure current index values against their perceived future performance and offer an indication of how markets may open when trading begins.
This follows a rally on Tuesday after Home Depot's (HD, Fortune 500) results and forecast gave investors a boost following a two-session retreat.
Global markets tumbled a sharp drop in China, the second in three days. Stocks in Shanghai finished 4% lower. The rest of Asia sagged and European shares fell in morning trading.
In the past two weeks, the Shanghai Composite Index has dropped nearly 20%, a decline some experts define as a bear market.
Economy: The selloff in China is likely to hit confidence, especially amid worries about the fragile global economic recovery. No major economic readings are on tap Wednesday, which could result in a volatile session.
Philip Isherwood, equities strategist at London-based Evolution Securities, said the Chinese sell-off was disturbing to U.S. and European investors "because China, obviously, is a symbol of growth."
"Equities require recovery, and China is an early-cycle talisman of recovery," said Isherwood. "China is being viewed as an early call on the global market picking up."
Western investors want China's economy to grow so that Chinese consumers will buy American and European imports, said Isherwood. But a heavy decline in the Shanghai markets undermines confidence that China would help with a Western recovery, he said.
"China has been a bright light for so long and they've been a big consumer of American products," said Anthony Conroy, head trader at BNY ConvergEx Group. "A slowdown there would certainly affect our market."
Conroy said investors are unloading futures to buy up the dollar, which is now seen as a safe haven, since "the U.S. market is coming out of a severe recession and it looks like [China is] going into one." But while dollars are considered a safe haven, he said this positive sentiment does not extend to the U.S. stock market, because it is seen as being more dependent on Chinese growth.
The plunge in the Shanghai Composite was triggered by a recent economic slowdown in a market that had rallied to the point of being overbought, said Conroy.
Money and oil: The dollar rose against the euro and the British pound, but slipped versus the yen. The price of oil fell 68 cents to $68.51 a barrel.
Earnings: Hewlett-Packard (HPQ, Fortune 500) reported a 19% drop in quarterly profit after U.S. markets closed Tuesday, but the computer maker said business was "stabilizing."