The 2016 stock market correction, which began on Jan. 1 and is still occurring, is the worst start to a new year on record. However, the third week of January was better, with the market rebounding a little. PublicDomainPictures / Pixabay
After two weeks of falling equity prices and one week of rising prices, January, 2016 continues to be the worst start to a new year for the stock market in history. Since all three of the major indices have fallen more than 10 percent below their recent highs, the stock market is in an official correction. This is despite the fact that this week all three of the indices rebounded, bringing some relief to investors.
January 2016 Stock Market Correction – First Three Weeks of Year
Dow Jones Industrial Averages:
End of 2015: 17,823.07 Jan. 22, 2016: 16,093.51 (-9.7 percent since Jan. 1)
52 Week High: 18,351.40 (now -12.3 percent below its 52 week high)
S & P 500:
End of 2015: 2,058.90 Jan. 22, 2016: 1,906.90 (-7.4 percent since Jan. 1)
52 Week High: 2,134.72 (now -10.7 percent below its 52 week high)
End of 2015: 4,736.05 Jan 22, 2016: 4,591.18 (-3.1 percent since Jan. 1)
52 Week High: 5,231.94 (now -12.2 percent below its 52 week high)
Major Causes of the January 2016 Stock Market Correction:
- Oil prices plunged during the first three weeks of this year and many analysts are not sure how much lower they could go. Some speculate that the price of oil could even fall to $10 a barrel, despite the fact that the price rebounded on Jan. 22 and bent crude futures went up to $32 a barrel. The issue has been made worse with the lifting of sanctions against Iran. Some analysts speculate this could increase the size of the oil glut. Venezuela has requested an emergency meeting of OPEC at least twice to see what can be done to prop up oil prices. The market hates uncertainty, and there has been a great deal of uncertainty around oil prices over the past few months.
- Emerging markets, led by China, now make up half of the global economy and China, in particular, is experiencing a slowdown in manufacturing. Third world debt is also weighing down some sectors of the emerging markets.
- Lower oil prices have caused the IMF to downgrade their growth forecast for Canada. Germany slightly downgraded their own growth forecast for 2016.
- Energy stocks have been particularly hard-hit. Their profits have dropped dramatically. There are also fears that if oil prices continue to fall, oil companies will start to fail and there will be massive layoffs in the industry. For example, Shell announced recently that their 4th Quarter 2015 profits fell by 40 percent due to lower oil prices. Moody’s announced this week that they plan to downgrade 120 oil and gas companies and 55 mining companies. As you can see below, 40 oil drillers have gone bankrupt already.
- Computerized trading accelerated the drop in equity prices on Wednesday. Automatic trading kicks in whenever certain computer algorithms are triggered. The trades occur so fast that the markets drop dramatically.
- There was other bad news this week including a gloomy forecast from IBM, a decline in new home construction starts in December, unresolved debt problems for Puerto Rico, and Barclays Bank announcing layoffs. Many “bears” do not believe the stock market correction is over, and this bounce is just temporary.
- Of course, there was some good news this week, as well, with existing home sales increasing 14.7 percent in December, which was better than expected. However, the good news did little to offset the fears caused by the negative factors affecting the stock market.
China, Venezuela, Mexico and a number of other emerging markets are having trouble:
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Significant Dates, Events and Economic Reports in January
- 26 — Regional and State Employment and Unemployment (Monthly) for December, 2015
- 29 – Employment Cost Index numbers released for the Fourth Quarter 2015
Significant Dates, Events and Economic Reports in February
- 4 – Productivity and Costs for the 4th Quarter of 2015
- 5 – January, 2016 Employment Situation is reported.
- 9 – Job Openings and Labor Turnover Survey for Dec. 2015.
- 12 – U.S. Import and Export Price Indexes for Jan. 2016
- 17 – Producer Price Index for Jan. 2016
- 19 – Consumer Price Index and Real Earnings for Jan. 2016
- 25 – Annual Volunteering in the U.S. report
Market prices provided by http://finance.yahoo.com
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