World markets are open for Monday trading, and they’re down.
US futures are in the red with Dow futures down 120 points and S&P 500 futures down 13 points.
Asian markets are also set to trade in the red.
All this follows last week’s bloodletting, which saw the S&P 500 fall 6%. It was the worst first five trading days in history.
There’s no shortage of explanations for all this:
- You have the Fed, which tightened monetary policy with an interest rate hike in December.
- You have oil prices, which are a struggling to find some sort of bottom.
- You have China, where we are witnessing a stock market breakdown amid slowing economic growth.
- And then you have geopolitical risks. Iran, Saudi Arabia, Syria, North Korea, and so on …
You could argue at least some of the market sell-off is justified as the expectations for earnings have been coming down amid tumbling oil prices. Goldman Sachs, Deutsche Bank, and RBC Capital Markets have all warned their clients about this risk to earnings.
And while geopolitical risks seem to always be present, experts warn that tensions are unusually high.
“There is growing political division in a year with a presidential election in the United States and a foundational political crisis for Europe,” Eurasia Group’s Ian Bremmer said regarding the geopolitical atmosphere. “Russia, in decline, is led by an increasingly combative — and resurgent — Vladimir Putin. China is becoming far more powerful, but with a foreign policy that reflects primarily economic (though still strategic) national interests.”
“This all means a dramatically more fragmented world in 2016 with more intra-, inter-, and extra-state conflict than any point since World War II.”
But it’s not all bad news.
On Friday, we learned US companies added a whopping 292,000 jobs in December, which was much more than the 200,000 expected by economists. This only adds to the narrative that the US consumer is strong.
“No doubt, the one bright of the U.S. economy has been consumer spending,” Wells Fargo’s Sam Bullard said in an email on Sunday. “Against numerous headwinds that have negatively impacted so many other sectors this past year, the resiliency of consumer spending has been encouraging and has promoted the consumer as the primary pillar of support of this economic expansion.”
This week comes with reports on retail sales and consumer sentiment. Perhaps we will get more confirmation about this bullish theme.