China and the New Year
Happy New Year?
I’m hopeful your holidays were filled with a little more joy and cheer than what we have been seeing in the market lately. The stock market has wavered recently. A lackluster year just ended, and this year has started inauspiciously. You may be wondering … should you really be invested in stocks right now?
In moments like these, investors should not panic and overreact to the headlines. Instead, they should take the long view of stock market investing, go back to the fundamental questions of whether it’s appropriate to be an investor in the first place. Have my goals or timelines changes? Has there been a major impact to my personal life? Do I have a properly funded emergency fund? Impulsive selling now can lead an investor to try and time the market later, and market timing usually leads investors to make mistakes.
Let’s walk through what’s going on…
On January 7, China halted stock trading for the second time in four days. The benchmark Shanghai Composite sank 7.0% on January 4 and dropped 7.3% three days later, both times activating a new circuit-breaker rule that stopped the trading session.1
Markets worldwide fell in reaction to these dramatic plunges. On January 7 alone, Japan’s Nikkei 225 and Germany’s DAX both suffered selloffs of 2.3%. On the same day, the Dow Jones Industrial Average dropped below the 17,000 level and the S&P 500 closed below 2,000.1,2,3
While the Dow and S&P respectively lost 2.3% and 2.4% Thursday, the Nasdaq Composite lost 3% and actually corrected from its July record settlement of 5,218.86.3
Why is China’s stock market slipping? You can cite several reasons. You have the well-noted slowdown of the country’s manufacturing sector, its rocky credit markets, and the instability in its exchange rate. You have Chinese concerns about the slide in oil prices, heightened at the beginning of January by the erosion of diplomatic ties between Iran and Saudi Arabia. You have China’s neighbor, North Korea, proclaiming that its arsenal now includes the hydrogen bomb. Finally, you have a wave of small investors caught up in margin trading and playing the market “like visitors to the dog track,” as reporter Evan Osnos wrote in the New Yorker. More than 38 million new retail brokerage accounts opened in China in a three-month period in 2015, shortly after the Communist Party spurred households to invest in stocks. Less than 10 million new brokerage accounts had opened in China in all of 2014.1,4
In trying to calm its markets, China may have done more harm than good. Chinese officials spent more than $1 trillion in 2015 to try and reassure investors, and right now they have little to show for it. Interest rates have been lowered; the yuan has been devalued again and again. The government has also made two abrupt (and to some observers, questionable) moves.2
Last July, they barred all shareholders owning 5% or more of a company from selling their stock for six months. That ban was set to expire on January 8, and that deadline stirred up bearish sentiment in the market this week. The prohibition was just renewed, with modifications, for three more months.4
On January 4, the China Securities Regulatory Commission instituted a circuit-breaker rule that would pause trading for 15 minutes upon a 5% market dive and end the trading day when stocks slumped 7% or more. On January 7, the CSRC scrapped the rule amid criticism that it was being triggered too easily; Thursday ended up being the shortest trading day in the history of China’s stock market. In the view of Hao Hong, chief China strategist at Bocom International Holdings, the circuit-breaker rule clearly backfired: it produced a “magnet effect,” with selloffs accelerating and liquidity evaporating as prices approached the breaker.1,2
As Peking University HSBC Business School economics professor Christopher Balding commented to Quartz, the CSRC seems to lack sufficient understanding of “what markets are, how they work or how they are going to react.” Quite possibly, China will make further dramatic moves to try and reduce stock market volatility this month. Will U.S. stocks rally upon such measures? Possibly, possibly not.2
Wall Street is contending with other headwinds. The oversupply of oil continues: according to Yardeni Research, world crude oil output rose 2.4% in the 12 months ending in November to a new record of 95.2 million barrels a day.1
Additionally, the pace of American manufacturing is a worldwide concern. In December, the Institute for Supply Management’s manufacturing PMI showed sector contraction (a reading under 50) for a second straight month. Factory orders were down for a thirteenth consecutive month in November (the first time a streak of declines that long has occurred outside of a recession) and the November durable goods orders report also disappointed investors.1,5
Citigroup maintains an Economic Surprise Index – a measure of the distance between analyst forecasts and actual numbers for various economic indicators. It just touched lows unseen since early last year, which is not a good sign as equities tend to react the most to surprises.1
If the Labor Department’s December employment report and the upcoming earnings season live up to expectations, stocks might recover from this descent even if China does little to stem the volatility in its market. The greater probability is that more market turmoil lies ahead. That short-term probability should not dissuade an investor from the long-run potential of stocks.
A particular headline or economic indicator may jolt the market on a particular day, but you are not invested for one day – you are investing for a lifetime. We have many positive signs in our economy – solid hiring, appreciable wage growth, steady consumer spending, a strong housing market – and they may lead to better corporate earnings in 2016. So be patient.
–Barnes Capital Group
Securities Offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Independent Financial Partners (IFP), a Registered Investment Advisor. Barnes Capital Group and IFP are separate entities from LPL Financial.
Citations.
1 – cbsnews.com/news/7-reasons-the-dow-lost-17000/ [1/7/16]
2 – qz.com/588386/chinas-new-stock-market-circuit-breaker-is-broken-and-it-is-panicking-investors/ [1/7/16]
3 – usatoday.com/story/money/markets/2016/01/06/china-stocks/78390650/ [1/7/16]
4 – latimes.com/business/hiltzik/la-fi-mh-a-reminder-china-s-stock-market-is-a-clown-show-20160107-column.html# [1/7/16]
5 – briefing.com/investor/calendars/economic/2016/01/04-08 [1/7/16]
หวยจีน
… [Trackback]
[…] Find More on that Topic: barnescapgroup.com/china-and-the-new-year/ […]
spore works
… [Trackback]
[…] Find More to that Topic: barnescapgroup.com/china-and-the-new-year/ […]
ป้ายโฆษณา
… [Trackback]
[…] Read More on to that Topic: barnescapgroup.com/china-and-the-new-year/ […]
รับพิมพ์สติ๊กเกอร์
… [Trackback]
[…] Find More Info here on that Topic: barnescapgroup.com/china-and-the-new-year/ […]
รับติดตั้งโซล่าเซลล์
… [Trackback]
[…] There you will find 99658 additional Information on that Topic: barnescapgroup.com/china-and-the-new-year/ […]
mushroom for sale online
… [Trackback]
[…] Information to that Topic: barnescapgroup.com/china-and-the-new-year/ […]
superkaya88
… [Trackback]
[…] Read More to that Topic: barnescapgroup.com/china-and-the-new-year/ […]
สล็อตเว็บนอก
… [Trackback]
[…] Information to that Topic: barnescapgroup.com/china-and-the-new-year/ […]
https://www.dallasnews.com/marketplace/2023/09/29/phenq-reviews-legit-diet-pills-or-fat-burner-scam/
… [Trackback]
[…] Info to that Topic: barnescapgroup.com/china-and-the-new-year/ […]
แทงบอลออนไลน์ ขั้นต่ำ 10 บาท
… [Trackback]
[…] Here you will find 58500 additional Information on that Topic: barnescapgroup.com/china-and-the-new-year/ […]
top flix para android
… [Trackback]
[…] There you can find 60305 additional Info to that Topic: barnescapgroup.com/china-and-the-new-year/ […]
wood chipper
… [Trackback]
[…] There you will find 76461 more Information on that Topic: barnescapgroup.com/china-and-the-new-year/ […]
http://www.truvisionhealthftp.com/blog-post-title/
… [Trackback]
[…] Find More to that Topic: barnescapgroup.com/china-and-the-new-year/ […]
สล็อตวอเลท
… [Trackback]
[…] Here you can find 88719 additional Info on that Topic: barnescapgroup.com/china-and-the-new-year/ […]
ดูหนังออนไลน์ฟรี
… [Trackback]
[…] Information on that Topic: barnescapgroup.com/china-and-the-new-year/ […]
ทุบตึก
… [Trackback]
[…] Find More Information here on that Topic: barnescapgroup.com/china-and-the-new-year/ […]
อะไหล่เครื่องใช้ไฟฟ้า
… [Trackback]
[…] Read More on that Topic: barnescapgroup.com/china-and-the-new-year/ […]
บาคาร่า lsm99
… [Trackback]
[…] Information to that Topic: barnescapgroup.com/china-and-the-new-year/ […]
i loved this
… [Trackback]
[…] Read More Info here to that Topic: barnescapgroup.com/china-and-the-new-year/ […]
เลสิค
… [Trackback]
[…] Info to that Topic: barnescapgroup.com/china-and-the-new-year/ […]
Zincbet ทางเข้าเล่น มีเกมอะไรบ้าง
… [Trackback]
[…] Here you will find 13113 additional Information to that Topic: barnescapgroup.com/china-and-the-new-year/ […]
ฟิล์มกรองแสง
… [Trackback]
[…] Read More Info here on that Topic: barnescapgroup.com/china-and-the-new-year/ […]
som777
… [Trackback]
[…] Find More here to that Topic: barnescapgroup.com/china-and-the-new-year/ […]
ยาเพิ่มขนาด
… [Trackback]
[…] Here you can find 37254 additional Information on that Topic: barnescapgroup.com/china-and-the-new-year/ […]
เช่ารถตู้พร้อมคนขับ
… [Trackback]
[…] Info on that Topic: barnescapgroup.com/china-and-the-new-year/ […]
slot gacor
… [Trackback]
[…] Information on that Topic: barnescapgroup.com/china-and-the-new-year/ […]
กระเบื้องยาง SPC
… [Trackback]
[…] There you can find 41011 more Info on that Topic: barnescapgroup.com/china-and-the-new-year/ […]
eBET คืออะไร ?
… [Trackback]
[…] Info on that Topic: barnescapgroup.com/china-and-the-new-year/ […]
bcm ar15 rifles
… [Trackback]
[…] Find More here to that Topic: barnescapgroup.com/china-and-the-new-year/ […]
ownedcore overwatch
… [Trackback]
[…] Find More Info here to that Topic: barnescapgroup.com/china-and-the-new-year/ […]
cartel vape
… [Trackback]
[…] Read More Information here on that Topic: barnescapgroup.com/china-and-the-new-year/ […]
grayzone hack
… [Trackback]
[…] Read More on that Topic: barnescapgroup.com/china-and-the-new-year/ […]
เว็บพนันเกาหลี
… [Trackback]
[…] There you will find 92502 additional Info on that Topic: barnescapgroup.com/china-and-the-new-year/ […]