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Markets sink as crude oil prices plunge: Dow down 500 points before rallying

Chris Parry Chris Parry, Stockhouse.com
0 Comments| January 20, 2016

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Everything is slumping, or so it would seem if you listen to the panic.

The Dow average today shed 528 points by mid-trading day, as US crude dropped to $27 a barrel, which is down 29% since January 1.

But it’s not just gas prices that are driving the markets into a spin; Housing starts decreased in December, the IMF cut its global growth outlook from 3.6% to 3.4%, copper prices slipped a few percentage points, and Japan’s Nikkei and Hong Kong’s Hang Seng indexes slipped 3.7% and 3.8% respectively. European exchanges followed suit.

Surprisingly, China’s Shanghai Composite only lost 1%, having been tumbling for much of 2016 and the late part of 2015.

Gold moved in contrast, up $14.70 to $1103.80, continuing a slow move upwards since January 1, and bond prices are moving upwards as money begins to move into low risk areas.

Airline executives are walking around with big smiles, as falling fuel prices make their lives much easier, and new rules in Canada allowing retail investors to take part in private placement financings have been approved in Western Canada, a decision that is intended to help smallcap companies and brokers raise money to public companies. Investors will need to go through a broker to take part in the deals, which are usually priced at a discount to the market share price and/or include warrants.

REACTION:
Lots of people saying words like ‘crash’, lots of short sellers stoking the flames. Any stock touching oil is being punched down, any stock relying on transportation is bouncy.

OUR TAKE:
The markets on both sides of the border legitimately need a shakeout. In the US, things have been bubbling for some time, with a lot of big name stocks trading at a huge premium to earnings. In Canada, the commodities game is being roughed up but, realistically, there’s a lot of roughing yet to be done in order for the lower end of the game to call it quits. Expect big M&A activity in the next month or two. Expect lots of fire sales.

Pay your credit card down and hold on. Where there’s fire, there’s regrowth soon after.

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