January 2016 - Forecasts & Trends

Forecasts & Trends is much more than just investment blog posts. You need to know the "big picture;" you need to have a "world view," especially in the post-911 world; and you need more information than ever before to be successful in meeting your financial goals. Gary intends to help you do just that.

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  • Stock Markets Plunge, Concerns Abound… Recession?

    The first half of January 2016 has been the worst New Year’s opening for the US stock markets in history. Yet nothing much has changed economically since the end of last year. So why is the Dow Jones down 8.24%, the S&P 500 down 8.00% and the Nasdaq down 10.36% in just the first two weeks or so of the New Year? The answer is not yet clear.

    According to the Stock Trader’s Almanac, if US stocks move lower in January, that means a down year for equities 75% of the time. While January is not over yet, it’s hard to imagine that stocks could close up for the month. So are we looking at the first down year for US stocks since 2008? Time will tell, but it sure looks that way.

    Questions abound. Did the Fed make a huge mistake by raising short-term rates by a mere 0.25% in December? Did news that China’s economy grew at only around 6% last year and may be slowing more this year upset the global apple cart? Are plunging oil prices really a bad thing?  Is a new global recession just around the corner? Should we be preparing for a new recession here in the US this year?

    These are the questions everyone is asking in the wake of the plunging stock market prices we have seen from the beginning of 2016. It is true that the current economic recovery which began in 2009 is the weakest in more than a half century, but this is nothing new. Rather than negative growth, GDP has expanded only by about 2% since Obama took office.

    Yet the Fed’s latest estimate of 4Q GDP growth has now fallen from 2.0% on December 17 to only 0.6% in the latest GDPNow estimate in the second week of January. This economy is losing momentum fast. The risks of a recession this year are quickly increasing. This may help explain why equities are tanking so far this year.

    There’s so much to talk about today, I’m not sure where to start. Let’s begin with the case for a recession this year, both globally and here at home.

    We’ll end on a positive note from Mark Hulbert, editor of the Hulbert Financial Digest, who suggests that this latest downward market correction may be over before too long. Let’s get started.

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  • Stocks Plunge Most On Record Last Week, Oil Down 10%

    In the first week of 2016, US stocks plunged by more than in any other first week of January since records have been kept (before 1900). The Dow Jones Industrial Index fell over 1,000 points from 17,591 at the close on December 31 to 16,519 at the close last Friday – a loss of over 6% in one week.

    The S&P 500 Index shed over 100 points from 2043.7 at the close on December 31 to 1922.0 at the close last Friday – a loss of 6.0% in one week. The Nasdaq Composite lost 7.3% during the worst first week of January on record.

    Most global stock markets were hit with similar losses or even worse in some cases. Investors around the world were stunned and are wondering what happened in the worst New Year’s  week in history for share prices – and worry if more pain is to follow.

    The financial media maintained that the carnage was caused primarily due to new economic data out of China, which was worse than expected. I will get into that as we go along today, but the rout was due to more than just disappointing Chinese data.

    The collapse in crude oil prices since mid-2014 is also becoming a serious global concern for reasons I will outline below. The price of West Texas Intermediate Crude has collapsed over 70% since mid-2014 from near $105 per barrel to below $33 a barrel as of last Friday’s close. It fell 10% last week alone and is down so far this week.

    While sharply lower gasoline and energy prices are a boon to consumers, there are now serious concerns about sovereign debt defaults in numerous oil producing countries. In addition, there are growing fears of global deflation as a result of collapsing oil and other commodity prices. I will tell you why below.

    Yet before we get into the complicated issues raised above, let’s take a few moments to discuss last Friday’s stronger than expected unemployment report for December.

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