Wall Street was bracing for a volatile start to trading in 2016 after shares in China crashed by 7% on the first full business day of the new year, causing activity on mainland Chinese stock exchanges to be halted by regulators.
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Shortly after trading began in NY, the Dow Jones was down 386.90 points, or 2.2%, at 17,038.13. Weak manufacturing data sparked the sell off. The automatically triggered suspension of trading can last from about 15 minutes up to more than a day. The first month of the year has proved more telling – the gauge’s return in January determines its direction for the year 72.4 per cent of the time. By contrast, the Nasdaq Composite (COMP – 4,903.09) dropped 104.3 points, or 2.1% – closing at its lowest point since October 21, and below the round 5,000 area.
“We’ve had a number of negatives out there in the U.S., and China is a reminder that there aren’t many things to be bullish about going into this year”, said Michael O’Rourke, chief market strategist at JonesTrading Institutional Services LLC in Greenwich, Connecticut.
Another hurdle is the approach of the Q4 earnings season, which will get its unofficial start on January 11 when Alcoa (AA) reports. Huang said: “The market will not improve because there will be heavy selling in the near future”. All 10 major S&P sectors were lower, led by the 2.4% decline in the tech sector. Factory activity shrank unexpectedly to 48.2 in December, according to the Institute for Supply Management, missing a reading of 49 expected by economists. Gold was up as well. As well as the weak data from China, US manufacturing is also contracting.
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Bespoke Investment Group notes that while the S&P 500 posted a modest loss, the average stock within the index was down 3.8 percent. Volatility will continue to dominate the market this year. “Middle Eastern concern and the escalation compounded by further issues in China are all adding to short-term weakness”, said Spencer, equities vice chairman at Baird in London.
