{"id":83620,"date":"2016-01-11T12:16:34","date_gmt":"2016-01-11T17:16:34","guid":{"rendered":"http:\/\/countingpips.com\/?p=83620"},"modified":"2016-01-11T12:16:34","modified_gmt":"2016-01-11T17:16:34","slug":"three-reasons-behind-the-new-year-selloff","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2016\/01\/three-reasons-behind-the-new-year-selloff\/","title":{"rendered":"Three Reasons Behind the New Year Selloff"},"content":{"rendered":"
January 11, 2016<\/div>
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By WallStreetDaily.com<\/u><\/a> \"Stock<\/p>\n

By Tim Maverick<\/a>, Senior Correspondent<\/em><\/p>\n

2016 certainly came in storming. Right off the bat, investors were met with a major selloff.<\/p>\n

The U.S. stock market<\/a> was, at one point, suffering through its worst opening day of a new year since 1932. It ultimately regained its footing, relatively speaking, and January 4, 2016 ended up being the worst start to a new year since 2008.<\/p>\n

So what the heck is going on?<\/p>\n

Well, it\u2019s a continuation of last year\u2019s woes. December, normally the strongest month of the year, was down \u2013 and now, there\u2019s an extra dose of geopolitical concern on top.<\/p>

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Point the Finger at China<\/h2>\n

When things go wrong, Washington and Wall Street have one trait in common: They love to place the blame on those darn foreigners.<\/p>\n

In most cases, China is the convenient whipping boy. The same was true on Monday, as China was blamed for the selloff.<\/p>\n

The mainland Chinese stock markets plunged for a number of reasons \u2013 not the least of which is that their newly enacted circuit breakers actually accentuated the selling.<\/p>\n

The selling itself was triggered by worries over the end of the lockup period, imposed by Beijing after the August swoon. Additionally, IPOs are resuming, draining the market of liquidity.<\/p>\n

Despite what CNBC says, though, the selloff was not <\/em>triggered by worries about the economy.<\/p>\n

The Purchasing Managers Index (PMI) on manufacturing activity came in relatively close to expectations. On the other hand, the U.S. Institute of Supply Management (ISM) Manufacturing Index fell to a five-year low, but that hardly got any play on U.S. media outlets.<\/p>\n

Chinese investors aren\u2019t stupid. They know that the services sector now accounts for roughly half of the country\u2019s economic activity. And that sector is soaring.<\/p>\n

Plus, Chinese investors know that more bumps in the road are coming as China transitions to a more services-focused economy. Thus, there\u2019s no reason to panic sell on one manufacturing number.<\/p>\n

The real reason for the China concerns was that the yuan hit a five-year low versus the dollar. In fact, the whole selloff through Thursday centered on the fact that China\u2019s currency fell by 1% versus the dollar. So it\u2019s much ado about 1%.<\/p>\n

But shame on any money manager who was caught off guard by that. The Chinese clearly telegraphed that move to the markets last month when it said its currency would now be pegged to a basket of currencies, not just the dollar.<\/p>\n

China\u2019s foreshadowing of the move was even clearer than the Fed announcing its intention to raise rates in 2015.<\/p>\n

Thanks to that dollar peg, China\u2019s currency soared 35% versus its trading partners over the past six years. That cut into its competitiveness and hurt its economy. We should expect further weakening versus the dollar as long as the dollar remains strong.<\/p>\n

Geopolitics<\/h2>\n

Now, the second reason behind the selloff was more genuine.<\/p>\n

Geopolitical turmoil in the Middle East has continued ratcheting up. The 1,400 year-old tensions between Sunnis and Shias continues with the Saudis (Sunnis) and Iranians (Shias) front and center.<\/p>\n

There won\u2019t be a direct confrontation between the two, but their proxy wars in Yemen, Syria, Iraq, Lebanon, and Bahrain will continue to rage on.<\/p>\n

Oil\u2019s reaction to this heightened tension should send any remaining bulls to the hills. Oil actually finished the day down.<\/p>\n

If rising Saudi-Iran tension doesn\u2019t ignite a bid, it may be a longer bear market than most think. I\u2019m sure most players in oil realize the Saudi-Iran \u201cwar\u201d for oil market share is just beginning.<\/p>\n

Meanwhile, North Korea decided to stir the pot even further by allegedly testing a hydrogen bomb on January 6. Now, the United Nations is deciding how to punish North Korea for its actions.<\/p>\n

Problems at Home, Too<\/h2>\n

Finally, the third reason for the stock swoon is domestic.<\/p>\n

The debacle that is the junk bond market continues, led by energy. Both mergers and acquisitions and stock buybacks are at record highs, thanks to the Fed\u2019s easy money policies. The last time both were at record highs was in 2007.<\/p>\n

The valuations of tech unicorns are falling. Mutual fund companies like Fidelity have been forced to mark down the value of their holdings. Let\u2019s hope they don\u2019t become unicorpses.<\/p>\n

Meanwhile, the list of winners narrowed a lot in 2015. What Ned Davis Research calls the \u201cNifty Nine,\u201d led by FANG, took center stage. The FANG stocks are, of course, Facebook Inc. <\/strong>(FB<\/a>), Amazon.com Inc. \u00a0<\/strong>(AMZN<\/a>), Netflix Inc. \u00a0<\/strong>(NFLX<\/a>), and Alphabet Inc. \u00a0<\/strong>(GOOG<\/a>). Rounding out the Nifty Nine are Priceline Group Inc.<\/strong> (PCLN<\/a>), Starbucks Corp. <\/strong>(SBUX<\/a>), Salesforce.com Inc. <\/strong>(CRM<\/a>), eBay Inc.<\/strong> (EBAY<\/a>), and Microsoft Corp. <\/strong>(MSFT<\/a>).<\/p>\n

\"A<\/p>\n

Take these stocks out, and the S&P 500 in 2015 wouldn\u2019t look so good.<\/p>\n

So should investors sell? Absolutely not.<\/p>\n

The Greenspan put is still in place. If the stock market gets weak in the knees, the Fed will come to the rescue. Interest rate hikes will end and, if needed, the Fed will come with QE4 and even negative interest rates.<\/p>\n

The c<\/strong>urrent Nifty Nine will simply rotate to other stocks. Perhaps Apple Inc.<\/strong> (AAPL<\/a>) will become the A in a new FANG?<\/p>\n

Good investing,<\/p>\n

Tim Maverick<\/p>\n

The post Three Reasons Behind the New Year Selloff<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By WallStreetDaily.com By Tim Maverick, Senior Correspondent 2016 certainly came in storming. Right off the bat, investors were met with a major selloff. The U.S. stock market was, at one point, suffering through its worst opening day of a new year since 1932. It ultimately regained its footing, relatively speaking, and January 4, 2016 ended […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-83620","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/83620","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=83620"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/83620\/revisions"}],"predecessor-version":[{"id":83652,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/83620\/revisions\/83652"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=83620"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=83620"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=83620"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}