Why the Heck are the Markets Tanking?

Why the Heck are the Markets Tanking?
January 18, 2016 Market Traders Institute

Today, the U.S. stock and options markets will definitely not drop (but only because they are closed for the Martin Luther King, Jr. Day holiday).

Everyone knows that all of the markets have taken a beating since the first trading day of 2016, but what isn’t understood by many is “Why?”  Here’s a breakdown of the most important factors affecting the worldwide markets right now.

Oil

Today it costs under $30 to buy a barrel of oil—oil’s lowest level in 12 years. As noted in an article in today’s Bloomberg Business, “It’s a global growth-type theme — the volatility in Chinese stocks and oil prices is pushing everything else,” said Jasper Lawler, a London-based market analyst at CMC Markets Plc. “People are protecting against another leg lower. Part of the reason for the downturn in the market is the worry the Fed got it wrong.”

China

Stocks in the second-largest economy in the world have entered bear-market territory for the second time in seven months.

Again, this economic pressure leads investors to worry where the bottom will be for certain Forex pairs, as well as for stocks and options.

China’s slowdown then has an impact on the next big factor…

The U.S. Dollar

As MTI’s Chris Irvin noted this weekend, “Expectations for rising U.S. interest rates, with the Fed taking its foot off the monetary gas pedal, are putting upward pressure on the dollar. And when the dollar rises rapidly, the implications for earnings are significant. Over 30% of the revenues for S&P 500 companies come from outside of the U.S. and thus are negatively impacted by a rising dollar.”

Bloomberg.com also noted, “U.S. economic data are also falling short of projections, stoking worries that the Fed’s December rate increase, the first in almost a decade, may have come too soon.”

Credit Market Question Marks

Also from Chris Irvin’s member-only SPY the Market report:  “In December, the high-yield bond market — also known as the junk-bond market — which is comprised of riskier companies with high debt levels, was under pressure amid the oil slump, as worries abounded that companies in energy-related sectors would default on their debt. And the worries began to extend beyond the energy sector. The turmoil in the junk-bond market received heightened attention because it is seen as a leading indicator for the equity markets.”

A world of education

The best defense against losses in difficult economic times is a good offense — and increased education should always be your first move.

Join us for one of our upcoming webinars — we even feature stock and options webinars today during the market’s day off.  Just register for a free Forex webinar using the form below, or join us for our stock and options webinars at https://www.markettraders.com/stock-package/.

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