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The $289 Billion Wipeout That Blindsided US Bulls

The $289 Billion Wipeout That Blindsided US Bulls
(Dollar Photo Club)

Monday, 04 January 2016 06:35 PM

As losses snowballed in U.S. stocks around midday, the best thing U.S. bulls had to say about the worst start to a year since 2001 was that there are 248 more trading days to make it up.

“My entire screen is blood red — there’s nothing good to talk about,” Phil Orlando, who helps oversee $360 billion as chief equity market strategist at Federated Investors Inc., said around noon in New York, as losses in the Dow Jones Industrial Average approached 500 points. “On days like today you need to take a step back, take a deep breath and let the rubble fall.”

Taking a break and breathing helped: the Dow added almost 150 points in the last 30 minutes to pare its loss to 276 points. Still, investors returning to work from holidays were greeted by the sixth-worst start to a year since 1927 for the Standard & Poor’s 500 Index, which plunged 1.5 percent to erase $289 billion in market value as weak Chinese manufacturing data unnerved equity markets.

The selloff started in China and persisted thanks to a flareup in tension between Saudi Arabia and Iran. A report in the U.S. showed manufacturing contracted at the fastest pace in more than six years added to concerns that growth is slowing.

It was a somber beginning though not necessarily a tone-setting one. Opening days of trading predict the market no better than the flip of a coin — first day gains or losses in U.S. stocks since 1904 have matched the annual direction half of the time, according to data compiled by S&P Dow Jones Indices. The first month of the year often proves more telling, with the gauge’s return in January determining direction 72.4 percent of the time.

Monday’s move was no less jarring among those hoping for a change of direction after a lackluster ending to 2015.

“You just don’t see significant moves like that on the first day of the year,” said Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co. in Milwaukee. “It feels very much about this being about the rally sputtering out. Expectations feel really muted.”

At the close of this year’s inaugural session, 415 companies in the S&P 500 ended down. The so-called “FANG” megacaps that dominated 2015’s gains — Facebook Inc., Amazon.com Inc., Netflix Inc. and Google’s parent Alphabet Inc. — tumbled 3.6 percent. All four fell to their lowest in at least two weeks.

The Nasdaq Composite Index posted its worst start of the year since plunging 7.2 percent in 2001. Global markets also took a beating, with the MSCI All-Country World Index tumbling 2 percent to its worst inaugural session on record.

It was a rocky beginning that for some required an exercise in emotional control.

“Let’s take a deep breath and focus on the greatest country in the world, the greatest economy in the world, and stop trying to worry about figuring out China,” said Brian Belski, chief investment strategist at BMO Capital Markets. “America, North America and developed markets can go up alone without emerging markets and China. We have to come to that fundamental conclusion and we have to start believing that.”

After the two biggest starting routs, in 1932 with a 6.9 percent decline, and 2001 with a 2.8 percent decline, the index averaged a full-year loss of 14 percent. Yet the five worst opens to a year had an average annual gain of 5.1 percent.

Economic reports due this week, including the government jobs data and minutes from the Federal Reserve’s December meeting, could turn focus away from oversea woes, said Orlando. That may erase the sour taste left from yesterday’s session.

“Investors realize this is a marathon, not a sprint, and we just got out of the gate,” Orlando said. “The fact that we have a bad day doesn’t mean stock indices will be down over the full year.”

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As losses snowballed in U.S. stocks around midday, the best thing U.S. bulls had to say about the worst start to a year since 2001 was that there are 248 more trading days to make it up.
stock market, bulls, invest, market losses
Monday, 04 January 2016 06:35 PM
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