The Wall Street saying says as January goes, so goes the year. If that’s the case for 2016, we could be in serious trouble.
US stocks began the year with their biggest intra-day selloff since September 2015. The Dow dropped 423 points, while the S&P 500 fell 48 points and NASDAQ plummeted 141 points.
The doom and gloom is largely caused by situations abroad—namely, in China and the Middle East.
Weak manufacturing data had the Chinese stock market grinding to a halt for the first time ever. Chinese markets dropped about seven percent overnight, with the results ricocheting over to the European markets as well. The Shanghai Composite Index was down 6.9%, the lowest level in three months. Chinese factory data, according to Mizuho Bank Ltd., is “still a long way off stirring up cheer about global demand recovery.”
Meanwhile, recent events in Saudi Arabia have investors concerned about accessibility to the world’s oil supply. Saudi Arabia announced on Sunday that they are severing diplomatic relations with Iran after a Shiite cleric was executed in Saudi Arabia. Protestors set fire to the Saudi Embassy in Tehran, and Iran’s top leaders have been extremely vocal with their criticism of Saudi Arabia. The turmoil is not doing the stock market any favors, to say the least.
So just how concerned should we be? According to some, not very. While an immediate decline in the market at the beginning of the year can be problematic, experts are quick to point out that this sort of decline is only predictive of a yearly downward trend half the time. The other 50% of the time, it merely suggests a volatile stock market with both downs and ups. According to Bloomberg, this has been the case since 1904.
Still, a year beginning with a plunge in equities around the world, as well as opening global stocks experiencing the worst opening day of trading in three decades, hardly evokes confidence. All eyes are on China and the Middle East to see what financial highs and lows 2016 will bring.