The market posted its worst five-day opening in history

BY  | FROM  | 2016-01-12 13:06

The market posted its worst five-day opening in history, be it for the S&P 500 or the Dow Jones Industrial Average.  The reality was that S&P 500 investors lost USD 1.05 Trillion, as global markets declined USD 1.59 Trillion, to take USD 2.64 Trillion out of the pockets of investors.

No market is an island, as China proved to the world, updating an old saying from “When the U.S. catches a cold, the world gets pneumonia” to “When China sneezes, the world gets a cold.”  More relevant to global investors was the adjustment to another U.S. saying, to “What happens in China doesn’t stay in China.”  The year opened with a poor Chinese Manufacturing Index report from Caixin, at 48.2, compared to the official level of 49.7. 

Chinese stocks declined quickly, triggering a new circuit breaker (implemented January 1, 2016) that halted trading for 15 minutes and then suspended it for the rest of the day, as the Shanghai closed off 6.9%.  If that was the sneeze, the cold was quantifiable via the global fall.  As a follow up, the Shanghai did a replay on Thursday, when it opened for just 29 minutes before the trigger shutdown closed the market—at off 7.0%.  Again, the result was global declines.  While the U.S. played its part in the decline, the fall was less severe, as the largest economy fell less than the second-largest economy fell, and not as much as number three, four, etc. 

By the weekend, China announced that it had suspended its circuit breaker after four days of being implemented, as it appeared to add to the selling after the trading halts. Helping the downturn was North Korea, which detonated either a hydrogen (as they say it was) or an atomic (as believed by the U.S.) bomb.  While I admit to a lack of expertise in the field, the takeaway, at least for most non-experts, was that it’s a big one and adds to the nervousness of those who have their “finger on the button.” Also adding to the uncertainty was the political fight between Saudi Arabia and Iran, as oil appeared to be a big loser (although it was already on the bottom), as the slick fell to a 12-year low, with many expecting it to decline further. On the positive side, the Shanghai stabilized Friday, closing up 2.0% (but down 10.0% for the week), and the U.S. December employment report came in much stronger than expected (although wages were flat), with strong upward revisions for employment.

 

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