Bumpy End of Year for Stocks
- Decline in oil and other commodity prices
- China and slower global growth
- Tighter corporate profit margins
- Strong U.S. dollar
The historic drop on the first day of trading in 2016 got people’s attention. Add to investor anxiety, even more conflict in the Middle East between Iran and Saudi Arabia.
Oil has had two incredible years of decline, dropping in 2014 from more than $100 to about $50 a barrel, and then a 35 percent plunge in 2015 to end in December at $37.04 U.S. Shale oil and fracking technology changed the supply equation and has led the U.S. to start exporting oil. But politics and efforts to protect shares and gain revenue, even from reduced prices from countries like Saudi Arabia and Russia, have kept the supply high and the price low. The expectation is for continued excess supply in 2016.
European markets, which have been much slower to recover post the 2008 Great Recession, had a good year due to European Central Bank stimulus and a more competitive euro. The STOXX Europe 600 was up 7.3 percent. Japan also benefited from central bank stimulus – was up 9.1 percent whereas emerging markets were down 7 percent due to the China slowdown and the commodity meltdown.
Does the down market indicate an end of the long bull market or just a pause? Does it presage a slowdown in the U.S. economy? Does it become a heightened issue in the U.S. presidential election?