No, I’m not talking about the Philadelphia 76’ers or the Titanic. I’m talking about the stock market in 2016. In the first week of trading this year, the Dow Jones Industrial Average declined 6.2%. Foreign stocks (the MSCI All World Index ex-US) declined 5.8%. According to pundits on CNBC that is the worst 5-day start in the history of U.S. stock markets. I believe them, but I don’t entirely discount that we all just might have bad memories.
Most of the selling seems to have been a reaction to WORSE declines in the Chinese stock market. Before our markets opened Monday, January 4th, the Shanghai Composite Index (SCI) dropped almost 7%, hitting a “circuit breaker,” which essentially halts trading for the day so everyone can take a breath and regain their wits. If the Chinese stock market didn’t have a circuit breaker, who knows how far it might have declined?
Halting trading worked for a day or two, but then traders lost their wits again and the SCI declined another 7% on Thursday. For the week, it gave up 10% of market value.
Other factors possibly contributing to the general feeling of hopelessness in the securities markets:
- Oil prices continue to decline. While seeming like a wonderfully positive thing to you as you pay $1.65/gallon for gasoline, falling oil prices are also an indication that the global economy is slowing so it doesn’t need much fuel. This week West Texas Intermediate has traded for less than $31/barrel.
- North Korea allegedly successfully tested a hydrogen bomb. Every now and then Kim Jong-un reminds the world that you just don’t want to get too comfortable.
We view the sell-off in U.S. markets as a correction… a healthy, long-overdue correction. It may correct more, but we don’t see a 2008 type sell-off. We are using this opportunity to begin to deploy some of the cash we have been sitting on for a couple of months. In other words, we are starting to buy stocks at this level.
CNBC loves times like this as investors panic with all the bad news. Do yourself a favor. Turn off the television and find something else to do.
This information is provided for general information purposes only and should not be construed as investment, tax, or legal advice. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.