Instead of glancing at your January 401(k) fund balances — and please don’t — look at gas station prices. Then turn your attention to China. The turmoil in global financial markets this month can largely be tied both to falling oil prices and a shaky Chinese economy, which is growing at its slowest rate in a quarter-century and has played a big role in the lessening demand for oil.
On Wednesday, persistent investor worries gave way to an all-out panic for a few hours — the Dow Jones Industrial Average lopped off more than 500 points before climbing back to close down by a manageable 249 points. The Dow turned green Thursday, thanks to a rise in crude and natural gas prices, but the rebound was hardly a signal of a return to stability. If anything, the 116-point gain only added to the sense of uncertainty.
With three mostly-miserable weeks of 2016 trading almost over, it isn’t the direction of any one day’s numbers that are noteworthy — it’s the attitude of stock traders. Their irrational insecurity could become contagious, creating a genuine drag on the actual economy — the one that exists beyond Wall Street. The one that is so far holding its own. “The market correction is not justified by US fundamentals,” says Nariman Behravesh, chief economist at the analysis firm IHS Inc. The economy may expand at a slower rate, he says, but there’s no danger of a recession “unless the stock market falls a lot more.”
Yet those in the financial sector have worked themselves into a frenzy over goings-on in other places. The US economy may be in decent shape, they say, but it’s not immune to an extended international slump.
While most people feel a bit better about their personal financial situation every time they fill up a gas tank these days, investment managers and traders fret that oil prices — down about 70 percent since the summer of 2014 — still have not reached the bottom floor. The lifting of sanctions on Iran will only add to the glut, they say, since the OPEC nation can start exporting oil again. The abundance of oil has led to layoffs at energy companies, whose stocks have been clobbered and are at five-year lows. That’s becoming increasingly troublesome for banks invested in the energy sector. You don’t have to rummage far back through history to figure out what can happen when bankers get the jitters.
No doubt, this month’s mini-meltdown has been unsettling, especially for the millions of Americans in or near retirement who are dependent on IRAs and company-sponsored savings plans. But as financial analysts cite dire numbers day after day — on paper, US stock investors have lost more than $2.2 trillion in January — there is comfort to be found in context. For starters, while plenty of American companies are eager to expand their businesses in China, the United States, unlike many other countries, doesn’t rise and fall on China’s growth rate. Remember that strong jobs report from December? In addition, consumer confidence was up last month, the cost of living fell, the unemployment rate is at 5 percent, and inflation hasn’t been a factor for a long time. Yes, lower energy prices played a part in all of those measures but, taken as a whole, they make a decent case for an economy that can withstand a month or two of white-knuckle markets. As long as investors don’t buy into fear.