The Chinese stock market had a very rough start to 2016. The market’s dip is based on a variety of factors including a potential real estate bubble bursting, lower manufacturing numbers, and the devaluation of the yuan. And when the emergency fail-safes kicked in and halted trading in the Chinese stock market, the fear was felt in the U.S.
Last week, the U.S. market started out with a negative trend downward in response to the fear in the world’s second largest economy. This surprised most analysts who thought the positive news of the payroll gains report would surpass the negativity happening in China’s market. The Labor department reported on January 8th that employers added 292,000 jobs in December 2015, a 46% increase in comparison to the projected 200,000 jobs forecasted mid-year by Bloomberg economists. This number signifies a healthy market in the US, yet the fear of a volatile China stock market was still felt.
“Contagion greatly affected [the] US stock market, just the fear alone, made the stock market decline last week; it followed the China stock market more closely than others predicted,” comments Marilyn Geewax, the senior business editor for National Public Radio.
What This Means For Investors
The rough starts in the markets, both here and abroad, serve as a reminder that a diversified portfolio is a necessity. This isn’t just about adding a different industry sector to your collection of stocks and mutual funds; it is about including assets that aren’t contingent upon the market for growth. Real estate is a wise choice because it can provide independency from the market and can grow via appreciation and through cash flow.