It’s not the best start of the year for the financial markets. All of the major U.S. stock indexes dropped for the fourth straight day, losing about 5% of value since the start of the year.
It was not unexpected. Twice this week, Beijing halted trading on the Chinese stock market after steep sell-offs. Just 29 minutes after opening Thursday, China’s market plunged seven percent. Europe and the United States braced themselves for the aftershocks.
The government has been trying to address China’s trend of dramatically slower growth with policy tweaks – this week, by devaluing the yuan in a controlled manner. But the psychological calculations that drive traders to dump stock are not always predictable.
Some economists say not to worry: this is to be expected and it is nowhere as bad as China’s sell off last summer. But the fact remains that when China sneezes, the rest of the world catches a cold.
For global markets, 2016 has gotten off to a rocky start.
World Events Include US and China Stock Market Instability
The Editors – Deseret News
It is tempting for Americans dealing with their own set of economic and social challenges to focus solely on problems at home rather than become exercised over what’s happening overseas… If China’s economy were to collapse, or if full-scale war were to break out between the Saudis and the Iranians, the economic consequences in the United States would be devastating.
Unfortunately, during this presidential election season, too many on the national stage are looking for ways to isolate the United States and turn a blind eye to the needs of those seeking refuge. Such short-sightedness isn’t just bad policy; it’s a denial of reality.
Our leaders, and our potential leaders, need to recognize that we are all global citizens as well as Americans. The world has become far too small for a nation like ours to bury its head in the sand.
China’s Rigged Markets Could Fall Much Further, Much Faster
Craig Stephen – MarketWatch
The question being posed anew is whether 2016 will be the year Beijing finally throws in the towel on its attempts to coerce multiple asset markets upwards, while its economy continues to sink in a sea of debt….
Another reason to be alert for a shift in government policy is the recent comment by President Xi Jinping. He was quoted in the mainland press saying that China will face increasing challenges over the next five years for which strong stimulus to boost development is no longer the solution….
Analysts warn this will come with a large bill to clean up bad debts and provide support for laid-off workers. Given these shifting priorities, it is hardly a stretch to conclude that it would be politically difficult for Beijing to keep extending unlimited funds to bail out equity investors.
Be Smart. Don’t Try to Time the Market.
Barry Riholtz – Bloomberg View
That all of this action should occur today, Jan. 7, is a wondrous coincidence.
As students of market-timing history all know, on this day in 1981, one of the world’s most heralded market timers made one of the world’s most egregious market calls.Today is the 35th anniversary of Joseph Granville’s “sell everything” missive to clients….
The result of his historic sell recommendation was a 2.4 percent decline in the Dow Jones Industrial Average on what was, at the time, record volume.The bottom line is this: The relentless rising trend for markets has been broken, and whether it is going to recover anytime soon is unknowable. Your best bet is to have a plan, stick to it and keep your own counsel.