So far, 2016 has not been a good year for investing. In just the first two weeks of trading, the Dow went down by more than 1,400 points, making it the worst ever ten day start to a trading year. With the S&P 500 also down 8 percent so far and the NASDAQ losing over 10 percent, it is clear there are serious issues forcing the markets down.
The five year hiatus of oil prices around $100 per barrel the global economic situation changed in 2015, causing oil prices to collapse and causing much of the current economic turmoil. Despite expectations that OPEC countries would reduce production in order to stop the price decline, Saudi Arabia has instead decided to defend its share of the market by continuing to pump oil at its usual pace.
With U.S. production not nearly as drastically reduced was expected, and Iran about to start exporting oil without restrictions again, the free-fall of prices continues. At under $30 per barrel, oil is affecting the markets in both short and long term, damaging commodity prices, disrupting capital spending plans, and impacting other material and industrial sectors of the economy.
China’s Market Woes
With China’s market entering bear territory again so soon, the effect can be felt around the world, including U.S. markets. As China owns a big chunk of U.S. debt, all significant negative changes in its markets have an adverse effect on the global economy. In addition to this, the Yuan is plummeting in value causing China to unload U.S. Treasuries to try and prop it up, meaning that U.S. interest rates are likely to face further upward pressure.
The current high value of the dollar is also putting an undue burden on exports and imports and negatively affecting the U.S. market. With over 30 percent of S&P 500 companies’ revenues coming from outside of the country, the rise in the dollar is actually reducing their returns. This is especially affecting the U.S. manufacturing sector adding to the less than investor friendly start to the New Year.