With investors sitting on pins and needles, one has to wonder if the US stock market is headed for a huge fall. In recent days, the Dow jones Industrial Average has fallen below the 15,700 mark, which represents a 12.5% drop from its highs as recently as early November 2015. The Nasdaq and S&P 500 have experienced similar losses.
Fuelling some of the unrest is predictions from leading economists and market prognosticators who are predicting everything from a bear market to an 80% drop over the next year or so. While these predictions might sound a bit pessimistic and extreme, there are several relevant factors that warrant scrutiny.
China – As the second largest economy in the world, economical unrest in China is sending shock waves all around the globe. For the US, a selling off of US Treasuries and the unpredictability of China’s future growth could put upward pressure on interest rates.
Oil – With oil prices dropping below $30 a barrel, oil concerns are headed for trouble. They face the potential of closing operations, bankruptcy and laying off large groups of employees, which could stall an already weak US recovery.
The Dollar – Corporate earnings for US companies with overseas concerns stand to see a big hit against profits as rising interest rates and dropping oil prices push the dollar higher against many of the world’s currencies.
General Uncertainty – With corporate earning expectations being lowered and the Fed giving no clear indication as to future direction, investors are flocking to the sidelines until they can get some much-needed clarity.
The reality is that as long as these market conditions exist, the stock market stands to take a beating every time a little piece of bad economic news hits the wire. If a bear market is indeed forming after 5+ years of market growth, investors best anchor down for a long year.