Market Crash In 2016?

| January 5, 2016 | 0 Comments

bearish chartMarket Crash Dead Ahead?

2016 isn’t starting off so hot…

The first trading day of the year brought a hefty downturn to the marketplace.  Equities succumbed to vicious selling as the Dow plummeted 276 points (1.5%), while the S&P 500 and Nasdaq careened lower by 1.5% and 2.0% respectively.

What happened?

Much of the downturn is in reaction to a heavy dose of Chinese market volatility.  The Shanghai Stock Exchange plunged 6.9% on Monday as skittish investors ran for the exits.  The abrupt downturn came on the heels of an exceptionally weak Caixin manufacturing purchasing managers index (PMI) report.

The closely monitored gauge of economic activity came in it 48.2 for December.  That’s lower than November’s reading of 48.6, and below consensus estimates of 49.  Remember, a reading below 50 indicates contraction in China’s vast manufacturing sector.

Clearly, things are still not well in the world’s second largest economy.

Despite numerous stimulus actions by the People’s Bank of China (PBOC) the last twelve months, the country’s economy is still mired in a worrisome contraction phase.

Here’s the real question…

Will the slowdown in China lead other economies down the tubes as well?

Here’s my take…

Given the exceptionally poor commodity performance the past year, there’s clearly a problem with global end demand.

A chart of the $CRB index sums up the situation in hard assets pretty well…

$CRB index performance increased likelihood of Market Crash

As you can see, the commodity focused CRB index fell a stunning 22.8% in 2015.  Remember, this closely watched index represents an equally weighted basket of the world’s 19 most important commodities.

While the huge downturn in crude oil prices had much to do with last year’s $CRB weakness, exceptional weakness in base and industrial metals added to the pain.

Here’s the deal…

It’s quite possible the commodity weakness of the past year is a canary in the coal mine.  In other words, a global equity downturn may not be far off.

Keep in mind, the US Federal Reserve just raised interest rates for the first time in 10 years this past December.

While the rate adjustment was small, the fact remains that equity markets now lack the primary tailwind (quantitative easing) that drove all the major equity indices sharply higher since the 2009 financial crisis.

Bottom line…

With Chinese economic data getting worse by the month, be wary of a sharp contraction in global growth.  If growth does take a turn for the worse, don’t be surprised to see a rather steep selloff in US equities in the near future.

Until Next Time,

Justin Bennett
Commodity Trading Research

BIO:  Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com.  With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them.  Sign up for our free reports and commodity newsletter at https://commoditytradingresearch.com/free-sign-up.

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Category: Commodity Trading

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.