It is said that when China sneezes, the U.S. gets a cold. Well, China has not been feeling well for a while, and their recent devaluation of the Yuan to begin 2016 -Happy New Year! -was worse than the hangover that many of the revelers felt on New Year’s Day. Now, China alone is not entirely to blame for Main and Wall Streets’ woes, but it is a major contributor.
Hindsight is 20/20, but people really shouldn’t be surprised by what has happened given how Main Street’s lack of enthusiasm for the future was disconnected from how Wall Street viewed it. About 2/3 of the U.S. economy is dependent upon consumer spending, and although employment is up, many of those jobs are not the high paying manufacturing jobs that once signaled the turnaround of the economy, but rather in , according to the Employment report on January 8th, 2016, “professional and business services, construction, health care, and food services and drinking places.” The declining oil prices have put a huge damper on that industry as companies seek to reduce costs through the reduction in production, which translates into fewer jobs. Also, wages have been stagnant with average hourly earnings failing to break 2.5% on a year over year basis. Furthermore, housing, in particular rents, have increased to the point that they take up a lion’s share of one’s paycheck. Ouch! Lastly, yes, finally, credit card debt is still a problem for many as that is used as a buffer or to augment the lack of wage increase and rising rents. The good news is that falling oil prices have resulted in lower gas prices, but, that savings is being pocketed to help make up for stagnant wage growth. Oh, the last bit of bad news is that health care spending is up due to the rise in premiums.
I still think the U.S. stock market, at the time of this report the DJIA was at 15,982.26 (down 396.79 or 2.42%) from the prior day’s closing, has further to drop. I tweeted on August 25, 2015 that I believed the market would close at 15,386.82 for that week. So, my timing was off, but my underlining assumptions weren’t; it has taken some stiff coffee for everyone to wake up. It has been my business experience that a poor quarter is viewed as a hiccup and that businessmen/women are often too slow to realize when it is something more; nothing wrong with being an optimist, but you have to temper it with some reality.