Unless you have had your head in the sand in 2016, you have seen that global markets have had the worst start to a year in history. As of this writing, the S&P 500 is down over 11% in less than twelve trading days. On the surface, that is absolutely insane. The United States created a whopping 292,000 jobs in the month of December, but somehow this is shrugged off, and the market tanks every day. Just last night, Netflix, who I’ve written about here before, reported their earnings, and blew away the expectations of analysts. However, their stock is trading down more than 6% today.
It isn’t just the United States that is going through severe market turmoil as the world wide markets are down over 12% this month alone. Its a scary time for anyone, especially those who live through the Great Recession during 2008-2009. There is no question that this sharp downturn can be mostly attributed to the collapse of the oil market. In July 2008, a barrel of oil was being traded for as high as $145, and today it is nearing $25 a barrel. I tend to unfortunately, pay quite a bit of attention to markets, and what is eye opening to me is what we hear from ‘experts’ as to how the price of oil affects the consumer. In 2008, the high price of oil was destroying the everyday consumer because of the price of gas and utilities. Airlines were adding massive fuel surcharges, and shipping companies such as UPS and FedEx were implementing the same charges.
Now the price of oil has come down, but its come down so far that it is creating a massive disturbance for all markets. The Middle East is attempting to flood the market with so much oil that they force many of the competitors right out of the market. Thus far they haven’t been successful, but it appears if the price goes down much lower, oil companies will literally be failing left and right. Its quite unfortunate when a situation like we are seeing with oil has the potential to push our country into a recession, when we have the lowest unemployment rate in decades at 5%.
While technology has made the world a smaller place, in cases like this it may make it a bit too small. The global financial markets are now down 12% because the price of oil is ‘too low’ and China is only growing at 6.8% a year? It appears that they days of looking at and investing in growing businesses, may be behind us. Markets are moving because of rumors on Twitter, and not because of earnings. I sincerely hope this is simply a phase that we are going through here in the first month of 2016. I’ve seen so many people scared off from investments due to what took place in 2008 & 2009, and market swings of 11% in less than three weeks is especially scary for young people looking at their 401K.
We live in the best country in the world, and our businesses will continue to innovate, and lead the way on a global scale. I just hope this volatility begins to settle to not spook individuals from investing in our great companies.