The worst January for US stocks in Wall Street history has analysts arguing about what the cause may be. From China to oil to general sluggishness, there seems to be no agreement on the horizon.
CNBC for its part quoted Deutsche Bank’s Chief International Economist, Torsten Slok, as saying that if China was to be blamed for the woes in the United States equity market, then the same yard stick was applicable to the Eurozone and Japan. He pointed out that both the regions have a strong trade relationships just like the US. Slok further said that the manufacturing sectors in Japan and Europe were performing much better than their peers in the United States. According to him, it is dollar strength that is dragging the US economy down.
He also pointed out that even as the dollar was trending higher in the last couple of years, the Euro has moved sideways since March of last year. The dollar might only continue to gain strength against emerging market currencies.
Risks Loom Large
Following the reports of a slowdown in China, investment managers are advising their clients to pare back risk in their investments. Also, two European investment bankes, Societe Generale SA (OTCMKTS:SCGLY) and the Royal Bank of Scotland Group PLC (NYSE:RBS) expect the equity market in America to face further downside. Both are warning that the oil price may trade below $20 with a possible 75% rout in stocks. Aside from these two, J.P. Morgan’s investment manager has reportedly advised clients to sell on rallies rather than buy on dips.
This could mean that even if there is going to be a rally in the market, the associated gains could be capped by consistent selling on any significant rally.