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For Stocks, A Brutal Start to 2016

Sunil Swami, Chief Investment Officer | JAN 12, 2016

China and Oil Spark Gloomy Start for Stocks

Global stock markets have had their worst start to a new year in decades. The S&P 500 fell 5.9 percent during the first week of 2016, and international stocks did even worse. The primary drivers of the weakness are China and oil. The Shanghai Composite Index fell 10 percent last week and the WTI crude oil price was down 10.5 percent.

The ongoing issues in China and oil are a continuation of what happened last year. Concerns over weak Chinese manufacturing data at the beginning of the year triggered the sell-off. The situation was made worse by new system-wide circuit breakers which did not work and led to further devaluation of the Chinese currency.  

Oil prices have continued to fall due to persistent global oversupply and because OPEC and other oil producing countries have continued to pump more oil rather than act to stabilize prices. Some analysts, including Morgan Stanley, are forecasting prices in the $20-25 per barrel range due to oversupply issues and the decline of China’s currency against the dollar.

We believe that China will continue to be a risk to global financial markets in 2016 and oil prices will not bottom until some of the weaker shale oil producers in the U.S. have gone out of business. We continue to expect a rocky year for stocks in 2016.

This article is provided for informational purposes only, is not intended as an offer or solicitation for the purchase or sale of any financial instruments and should not be relied upon as an investment recommendation. Alerus Financial, N.A. and its affiliate subsidiary companies make no representations or warranties as to the accuracy, completeness or timeliness of the information. The information is not intended to provide legal or tax advice. Individuals should consult a qualified legal or tax advisor for advice specific to their circumstances. 

About the Author

Sunil Swami, Chief Investment Officer

Mr. Swami has decades of experience in the investment management and related fields.

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