Feature

What worries Wall Street

U.S. markets rang in the new trading year with a belly flop. Is more bad news on the horizon?

The smartest insight and analysis on Wall Street's new year, from all perspectives, rounded up from around the web:

"So much for a fresh start on Wall Street after a lackluster 2015," said Adam Shell at USA Today. U.S. markets rang in the new trading year with a belly flop, with the Dow Jones industrial average posting its biggest opening-day loss since 2008. Global stocks also plunged amid "fresh signs of slowing growth in China" and weak U.S. manufacturing data, before trimming their losses later in the week. Normally, data like that wouldn't lead to such a rout, said Matt Phillips at Quartz. China's economic slowdown is "old, old news," and "it's fair to assume that low oil prices are weakening the U.S. manufacturing sector." But after a disappointing 2015 — the S&P 500 ended the year down 0.7 percent, its first annual decline since the financial crisis — Wall Street wanted, needed a dose of good news to kick off the year. Already, signals for 2016 "don't look so hot."

What's odd is that by most measures the U.S. economy remains in pretty good shape, said Alain Sherter at CBS News. Unemployment is down to 5 percent, consumer confidence is up, and the Federal Reserve trusts the recovery enough to have raised interest rates in December for the first time since 2006. But "some experts see danger on the horizon." Citigroup's Citi Research puts the probability of the U.S. slipping into a recession at 65 percent this year. That's partly based on historical data: The odds of an economic downturn increase to 50 percent roughly five years into a recovery, and we're into year seven. Threatening economic headwinds, not the least of which is the slowdown in China, could yet "batter the fragile U.S. recovery into submission."

Plenty could go wrong, said Caroline Valetkevitch at Reuters. Corporate earnings growth was flat last year, leading to concerns that profits may further stumble in 2016. A strong dollar might "keep inflicting pain" on manufacturers by crimping sales of U.S. goods overseas. The Federal Reserve might "get aggressive" and raise interest rates too fast, upsetting already nervous markets. The price of oil might stay low, wreaking more havoc in the energy market. And though cheap gasoline has put more money in consumers' pockets, they appear to be saving it rather than spending it. Then there are the big geopolitical unknowns that could truly roil markets, like a major terrorist attack or the election of a fringe U.S. presidential candidate.

Despite the dour mood, some Wall Street prognosticators remain optimistic, said Steven Russolillo at The Wall Street Journal. A group of Wall Street strategists tracked by research firm Birinyi Associates expects the S&P 500 to rebound and gain, on average, about 8 percent this year. That said, the only thing that's certain is that most market predictions "aren't worth the paper they are written on." Since 2000, the S&P has returned a 4 percent average annual gain, even though Birinyi's Wall Street strategists have predicted 10 percent yearly returns. Another study of some 6,500 forecasts by "so-called market gurus" found that fewer than half of these experts correctly predicted the S&P 500 performance more than 50 percent of the time. The takeaway: "Take Wall Street's collective wisdom, and expect something different."

Recommended

Nvidia joins the trillion-dollar club
Nvidia
Feature

Nvidia joins the trillion-dollar club

When corporate pride goes south
Protestors and Pride merch at Target
Briefing

When corporate pride goes south

A terrible time management idea
An hourglass on a office table.
Feature

A terrible time management idea

Zoomers at work
Man on phone in an office.
Briefing

Zoomers at work

Most Popular

Is Trump's wall working?
International Border Wall Between Tecate California and Tecate Mexico.
Briefing

Is Trump's wall working?

Trump's recording: Is this 'game over'?
Former President Donald Trump smiles at the camera
Talking point

Trump's recording: Is this 'game over'?

10 states sue FEMA over flood insurance rate hike
FEMA State Disaster Recovery Center after Hurricane Ian
'a natural disaster of its own'

10 states sue FEMA over flood insurance rate hike