Monday, January 04, 2016

What a Way to Ring the New Year!!!

Today was the first trading day of 2016 and what a day it was. It was a total bloodbath. The sell-off started in China for no obvious reason. Yes, the manufacturing PMI at 48.2 was the 10th month below 50 but that was not a great surprise. There is speculation that ending the ban on insider selling that'll come into effect this Friday could have prompted the sell-off but that's more a hearsay. At least the circuit breaking rule in Chinese markets came into effect today worked. After 5% decline, trading was halted for 15 minutes. After trading resumed markets fell 7% within 6 minutes and markets was closed for the day.
The sell-off spread to Europe where DAX fell more than 4% and to the US. The fact that December ISM Manufacturing date released this morning at 48.2 was the lowest since June 2009 did not help. S&P500 ended the day down 1.53%. The last time markets fell this much on the 1st trading day of the year was 2008 and the index fell 38% by the year-end. While that sounds ominous, it does not mean much - in the last 5 episodes when markets fell by that much on the first day, 2 ended the year down while 3 ended up.