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Profit Confidential (www.ProfitConfidential.com), an e-letter of Lombardi Publishing Corporation, a 30-year-old consumer publisher that has served over one million customers in 141 countries, weighs in on the current state of the stock market and gives three key reasons why the stock market could crash in 2016.“After years of strong growth and double-digit gain, the S&P 500 and Dow Jones Industrial Average, and Russell 2000 are off to their worst starts in a new year. The S&P 500 is down almost 8.0% since the beginning of the year; the Dow Jones Industrial Average is down more than 8.0%, and the Russell 2000 Small Cap Index is off 12.0%,” says economist and lead contributor Michael Lombardi. “This could be just the beginning, as the stock market could crash in 2016 for several reasons.”
First, investors are reducing their risk exposure to the stock market, as demand for small-cap stock companies plummets. Small-cap stocks are considered risky bets and whether investors are buying them says a lot about overall risk appetite. The Russell 2000 small-cap index, a bellwether index that tracks the stock prices of small-cap companies, is down 23% since hitting an all-time high in June 2015 and down 12% since the start of January 2016.
“Plus, a lot of hot technology stocks aren’t faring well either. Stocks that were market leaders in 2015 are on the selling end in 2016,” Lombardi adds. “Finally, the Chicago Board Options Exchange [CBOE] Volatility Index [VIX], often referred to as the ‘fear index,’ has soared 70% since the beginning of November. This shouldn’t go unnoticed; it tells us that fear of a stock market crash in 2016 is growing among investors.”
The markets are already experiencing a sell-off, but a broader sell-off is on the horizon. Corporate earnings and revenues are in full retreat. The S&P 500 cannot rebound and climb higher when it’s posting consistent back-to-back earnings and revenue contractions.
“Irrationality gives a false sense of security to investors. Eventually, reality comes into play and when it does, it could feel as if the rug is being pulled out from under our feet,” Lombardi concludes.
Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. More information on Lombardi Publishing Corporation can be found at www.LombardiPublishing.com.
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Release ID: 101734