The start of 2016 was not ideal for the stock market. The Dow Jones Industrial average nearly plummeted 400 points as the problems with the Chinese equities markets expanded to other areas of the global economy.
The massive sell off began after the People’s Bank of China made one of the largest drops in their valuation of the Yuan since August of 2015. The market was down 7% as concerns were realized about capital leaving the market and Chinese stock markets stopping trading entirely for half an hour. Last week marked one of the shortest trading days in Chinese stock market history. The reason behind this was a control system enacted to limit any large amounts of volatility.
The Dow had dropped around 400 points which came out to around 2.3% overall. The S&P 500 was also down 2.4% and began some of the worst index starts ever. The first four days of the year had the Dow down 5.2% and the S&P wasn’t far off behind at 4.9%.
The Nasdaq composite was also not off to the best start of the year as it declined 3% and was at its lowest starting off point since the year 2000
Traders were prepared for the frantic selling of securities but did not feel a sense of urgency in selling off shares. US markets are closely related to global markets and that’s a fact but there wasn’t any need for major concern right away in the form of selling off massive amounts of stock.
Many other market indexes fell around the world and that included Hong Kong’s Hang Seng Index down 2%, as well as Japan’s Nikkei Stock Average. Also Europe’s Stoxx Europe 600 was also down 2.2%
The China fear also worked its way into the commodities market and U.S oil suffered as a result. This also spilled over to precious metals as well. Meanwhile, this was a benefit to some securities like Treasury bonds that can be seen as a safe investment at times like these, as well as gold.
The underlying fear is that the because of currency markets being so volatile the economy is not doing that well and that’s a concern for many countries around the world. China being the country vividly showing it outright and leading the concerns among other markets.
The start of 2016 and leading into the middle of the year is going to be a high amount of volatility. Shifts in the Chinese economy are going to come to the forefront at this transitional time along with some troubles with oil and that is also affecting emerging markets. Then there was also the federal rate hike that had worried a lot of investors. All of this was combined for the perfect storm for a less than stellar opening performance for the stock market resulting in the dour Dow performance. This could be the worst of it as the market begins to stabilize and the Dow can begin up trending again when these issues are faced.