The 2016 market has been brutal for Wall Street, with global stock indexes getting slammed as oil prices have continued to fall.
Here’s a quick scorecard through Monday:
- S&P (-8.7%)
- Nasdaq (-13.3%)
- DAX (-14.7%)
- Nikkei (-15.6%)
- Shanghai Composite index (-19.83%)
Activist investor Dan Loeb, who founded the $17.5 billion hedge fund Third Point, wrote to his investors that the indexes’ declines “actually fail to capture the true carnage revealed when you take a closer look at the breadth of S&P companies experiencing massive losses.”
He continued: “In some cases, these losses may represent permanent value destruction. The 2015 market we dubbed a Haunted House feels about as scary as the Disney kids’ ride It’s a Small World when compared to 2016.”
In 2015, Loeb characterized the market as a haunted housebecause it seemed as if a scary new market event were lurking around every corner.
It doesn’t seem so scary compared with this year.
It’s been a horrible start to the year for hedge funds in general, with hedge funds on average falling 2.76% in January. It follows an awful 2015, in which hedge funds were down 3.64% on average, data from Hedge Fund Research shows.
Loeb said this year was shaping up to be a “‘Wall Street’ recession.” He added, however, that we hadn’t reached the point at which it was a “‘Main Street’ recession.”
So far this year, markets have suffered from a more steady drumbeat of negative news about China’s demise, how-low-can-they-go commodity prices, a possible US recession, high yield credit sell-offs, spiking national deficits, and Fed policy and statements that appear incoherent to many market participants. Additional toxic ingredients have been added to the mix in February: whispers of instability among major European Financial institutions, unusual currency volatility and negative rates in some major economies, and a massive sell-off in the momentum stocks that sheltered some investors last year.
As we look around the world, we see a need to rebalance important parts of the global economy and concurrent industrial over-capacity in some sectors. Imbalances like these create inequality and discontent and we attribute the unusual state of the US election to this sentiment. There is no doubt that the rise of populism in the Presidential race is creating further market uncertainty. So far, however, this is a “Wall Street” recession, not a “Main Street” recession. It is unclear at what point a falling stock market begins to impact consumer wealth such that American buyers retrench. If we reach this point, there is no doubt that the economic picture in the US becomes grim.
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