Investors wonder: When will the pain end?
There are two questions related to the stock market that only come up when stock prices keep going down. Where’s the bottom? And, what will stop the pain — and the selling?
Those questions are relevant today with U.S. stock trading set to reopen Tuesday after the three-day Martin Luther King Day holiday weekend and investors bracing for more pain after last week’s rout extended the Dow’s 2016 loss to 8.3% in what has been Wall Street's worst start to a year ever.
Market jitters and fear levels remain elevated amid an early-year global sell-off in stocks and commodities driven by fears of a global slowdown, the fallout from the Federal Reserve's first interest rate hike in a decade and lingering worries about China’s wobbly economy and stock market.
Adding to the angst: U.S.-produced oil, now trading at 12-year lows in the high $20s (the cost fell as low as $28.36 a barrel Monday), faces fresh downside pressure because Iranian oil will soon hit the already oversupplied world market.
Iran's oil ministers plan to boost initial production and shipping to 500,000 barrels per day following Saturday's lifting of international economic sanctions on the Mideast nation, the Islamic Republic News Agency reported.
Iranian oil likely to push prices lower
Jittery U.S. investors will also be digesting how world markets fared Monday. Japan's Nikkei 225 fell 1.1%, the Shanghai composite in China gained 0.44%, while Stoxx Europe 600 trimmed intraday Monday losses and closed down 0.36%. Saudi Arabia's stock market stabilized, closing up 0.1% after dropping 5.4% Sunday on the Iran oil news.
Dow futures, meanwhile, closed nearly flat.
When — and at what price level — the selling in the U.S. stock market will end is tough to pinpoint. However, there’s a sense on Wall Street that the fall is not over quite yet.
“Downward moves like this don’t just die in a day,” says JJ Kinahan, chief market strategist at TD Ameritrade. “On Tuesday, even if we have a rally, everything’s not going to be hunky dory.”
Historically, picking a market bottom accurately isn’t easy. And the confluence of events spooking markets now — plunging oil prices, weakening global growth and rising fears of a U.S. recession — makes accurate predictions that much tougher.
“Trying to determine the exact bottom is difficult, if not impossible, as the market is being driven by events that are very difficult to forecast,” says Ernie Cecilia, chief investment officer at Bryn Mawr Trust.
Wall Street pros, however, have been throwing out guesstimates.
Larry Fink, CEO of money-management firm BlackRock, predicted before Friday's sell-off that stocks could fall another 10%.
And he’s not alone in predicting more losses to come — although only mega-bears are predicting huge declines similar to the 2008 financial crisis.
“This feels as if there is more room to fall,” John Manley, chief equity strategist at Wells Fargo’s Funds Management Group, told USA TODAY.
Adds John Canally, a market strategist at LPL Financial: “Absent a recession, which we don’t expect in 2016, this is a correction" (or a drop greater than 10%) "not a bear market" (or drop of 20% or more).
Eric Wiegand, senior portfolio manager at U.S. Bank Wealth Management, says the market is “retesting the lows of last August.” The large-company stock index briefly breached its August low Friday, dipping as low as 1857.83 before closing down 2.2% at 1880.33. It is down 8% for the year and nearly 12% off its May peak. If the August lows don't hold, more downside is expected.
Investors should expect the roller-coaster ride to continue, Wiegand warns.
So what will it take to bring stability back to a market in free fall?
• Investor capitulation
Normally, stocks don’t stop going down until scared investors throw in the towel and get out, which Wall Street dubs "capitulation."
“It does feel a bit like capitulation,” says Barry Bannister, chief equity strategist at Stifel. But it could take another big swoon to get more frightened investors to flee, setting up a real bottom.
• About-face from the Fed
Any hints from the Fed that worsening conditions in the global markets and economy might force them to reduce the number of planned interest rate hikes this year, says Alan Skrainka, chief investment officer at Cornerstone Wealth Management.
• Signs of stabilization
Oil prices have to stabilize. And investors need some good news from China.
“Investors are looking for signs that the drop in oil prices is not a signal of a slowdown in global growth, and that China can successfully make the transition from a manufacturing-led export economy to a service-led domestic economy,” says Canally.
• Soothing words from CEOs
Better-than-expected fourth-quarter earnings reports from U.S. companies would also lift investors’ spirits, adds Canally, as would “soothing words from corporate managements” for the first quarter of 2016 and beyond, he adds. “That may refocus investors’ attention on the still decent state of corporate fundamentals.”
Companies reporting earnings this week include Bank of America, Netflix, Goldman Sachs, Starbucks and General Electric.