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Falling oil prices, volatility in Chinese stocks and concerns about China’s economic growth prospects turned January into one of the most difficult months since last summer when these same concerns pushed global markets sharply lower.
For the month, the Dow Jones Industrial Average lost 5.50 percent, the Standard & Poor’s 500 Index fell 5.07 percent and the NASDAQ Composite Index slid 7.86 percent.1
January began with the worst first five trading days of a new year ever for the S&P 500 and the Dow Jones Industrials as Chinese stocks cratered and oil prices sank. 2 Losses continued to mount with major indices entering correction territory, as oil moved lower and a slumping Chinese stock market revived fears of the government’s inability to manage volatility and its slowing economy.
It wasn’t until the third week that stocks posted their first positive week in a month, rallying on a rebound in oil prices and hopes of overseas stimulus.
Stocks were also buoyed by better-than-expected corporate earnings. Of the companies in the S&P 500 who reported earnings as of January 22nd, 73 percent of them posted earnings above the mean estimate.3
The month closed out on a positive note in response to stabilizing oil prices and the Bank of Japan’s decision to cut rates, but it was not enough to overcome earlier-month losses.
Save the Utilities sector, which gained 2.25 percent, all of the S&P 500 sectors lost ground in January, led by double-digit losses in Materials (-13.97 percent) and Financials (-11.92 percent). The remaining sectors fared a bit better, but still moved lower, with declines in Consumer Staples (-2.07 percent), Consumer Discretionary (-6.83 percent), Energy (-6.44 percent), Health Care (-9.31 percent), Industrials (-8.74 percent), and Technology (-7.50 percent).4
Markets overseas also wobbled on global economic growth concerns, declining oil prices and other challenges unique to their local markets. The MSCI-EAFE Index lost 8.26 percent for the month.5
The stock market pain was shared by the major European markets, with France, Germany, Switzerland and the United Kingdom posting declines for the month.6
The losses were more acute for Pacific region stocks as Australia, Hong Kong and Japan suffered sharp declines.7
Gross Domestic Product: U.S. economic growth slowed in the fourth quarter, expanding by just 0.7 percent, and capping another year of tepid, if somewhat consistent, economic expansion. The full-year GDP increase of 2.4 percent matched 2014’s growth number and came in higher than the 2.1 percent average since 2010.8
Employment: The job market continued to exhibit strength as nonfarm payrolls increased 292,000 in December. The unemployment rate remained at 5.0 percent. For 2015, the economy added an average of 221,000 jobs per month, a dip from 2014’s average of 260,000, but the second-best year since 1999. Wages for private-sector workers declined slightly in December, though they rose a modest 2.5 percent for the year.9
Retail Sales: Clocking in the slowest growth since the end of the recession in 2009, retail sales fell 0.1 percent in December, finishing 2015 with just a 2.1 percent increase, well off the 3.9 percent gain in 2014.10
Industrial Production: For the third consecutive month, industrial production declined, falling 0.4 percent. Capacity utilization also fell, to 76.5 percent, and remains well below the 80 percent rate it generally stood at before the recession.11
Housing: Housing starts dipped 2.5 percent in the final month of 2015, with single-family homes (nearly two-thirds of the residential market) slipping 3.3 percent.12
Existing home sales rebounded 14.7 percent, pushing 2015 sales to their highest level since 2006. The national median home price was $224,100, a jump of 7.6 percent from a year earlier.13
New home sales posted a 10.8 percent increase in December, making last year the best sales year since 2007.14
CPI: Falling energy prices offset higher shelter and medical care costs, resulting in a decline of 0.1 percent in the Consumer Price Index. Excluding the more volatile food and energy categories, core inflation rose just 0.1 percent, the smallest increase since August.15
Durable Goods Orders: Orders for long-lasting goods sank 5.1 percent as weak global growth continued to weigh on U.S. manufacturers. Last year was also the first annual decline (-3.5 percent) since 2009.16
In its first policy decision of the year, the Fed announced that it would hold rates steady, while maintaining a close watch on global economies and markets. The Fed also reiterated its belief that the U.S. economy is still on a growth track, but was noncommittal on whether recent developments in the financial markets would alter its rate hike plans.17
With many global indices, including U.S. stocks, hovering near, or already in market correction territory (down 10 to 20 percent), and some markets in bear market territory (down 20 percent or more), now is a good time to look at long-term trends for the markets.
Since 1900, there have been 123 corrections (an average of one per year) and 32 bear markets (one every 3.5 years) through 2013. The average time it takes the market to fully recover from a correction is 10 months, with bear markets lasting 15 months on average. Of course, past performance does not guarantee future results.18
For investors, the first impulse may be to exit these markets to preserve capital. This “flight” instinct, however, may be a mistake. Between 80 and 90 percent of stock market returns occur on less than 10 percent of the trading days. Exiting investors can rarely predict a market bottom and often re-enter the market long after the recovery is underway. One study found that stocks rose on average 32.5 percent in the 12 months following a bear market bottom. If an investor was late in re-entering the market by just one week, his or her return fell to 24.3 percent, and if an investor waited three months, his or her average gain fell to 15 percent.19
It may be the nature of traders to react to daily market gyrations, but for the long-term investor, patience and discipline can be critical.
Share of adult Americans who currently use social networking sites: 65%20
Percent who used them in 2005: 7 20
Share of young adults (ages 18 to 29) who use social media: 9 in 10 20
Percent of seniors who use it: 35 20
Percent of seniors who used it five years ago: 11 20
Number of people worldwide who are active on Facebook: 1.6 billion 21
Population of China: 1.4 billion 22
Number of fake Facebook users: about 170 million 23
Number of people currently on LinkedIn: 396 million 24
Number of people who were on it five years ago: 80 million 24
Worldwide advertising revenue of social networks: $25.14 billion 24
Projected revenue for 2017: $41 billion 24
GDP of El Salvador: $25 billion 25
Business owners who say social media has improved their business’ search rankings: 58% 24
Most important social channel for B2B marketers: LinkedIn, 41% (Facebook, 30%) 26
Most important channel for B2C marketers: Facebook, 65% (Twitter, 10%) 26
Number of videos viewed on Facebook every day: 8 billion 27
Year Facebook was born: 2004 28
Number of Facebook users by the end of 2004: 1 million 28
Facebook founder Mark Zuckerberg’s net worth: $41.6 billion 27
Number of Twitter followers for the @barackobama account: 69 million 29
Number of followers for @katyperry: 82 million 29
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.
Investing involves risks, and investment decisions should be based on your own goals, time horizon and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
Any companies mentioned are for illustrative purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance.
The forecasts or forward-looking statements are based on assumptions, may not materialize and are subject to revision without notice.
The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.
Please consult your financial advisor for additional information.
Copyright 2015 FMG Suite.
1. The Wall Street Journal, January 31, 2016
2. CNBC.com, January 10, 2016
3. Factset Research Systems, January 22, 2016
4. Interactive Data Managed Solutions, January 31, 2016
5. MSCI.com, December 31, 2015
6. MSCI.com, December 31, 2015
7. MSCI.com, December 31, 2015
8. The Wall Street Journal, January 29, 2016
9. The Wall Street Journal, January 8, 2016
10. The Wall Street Journal, January 15, 2016
11. The Wall Street Journal, January 15, 2016
12. The Wall Street Journal, January 20, 2016
13. The Wall Street Journal, January 22, 2016
14. The Wall Street Journal, January 27, 2016
15. The Wall Street Journal, January 20, 2016
16. The Wall Street Journal, January 28, 2016
17. The Wall Street Journal, January 27, 2016
18. CNBC.com, August 24, 2015
19. Dow Theory Forecasts, January 2016
20. Pew Research Center, October 8, 2015
21. Statista.com, November 2015
22. CIA World Factbook, 2015
23. Huffington Post, May 22, 2015
24. Statista.com, 2015
25. World Bank, December 29, 2015
26. Statista May 29, 2015
27. Forbes, January 18, 2016
28. Biography.com, 2015
29. Statista.com, January 2016