Stock markets all over the world took a plunge on the first day of trading in 2016. Stock market expert Wayne Stutzer, a senior vice president of RCB Wealth Management, will talk about what happened.
Ted Simons: Coming up next on "Arizona Horizon," all eyes on wall street as the stock market takes a plunge today. Also tonight, what business leaders hope to see from the upcoming legislative session. And we'll hear about improvements underway at Phoenix children's hospital. Those stories next on "Arizona Horizon."
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Ted Simons: Good evening and welcome to "Arizona Horizon," I'm Ted Simons. A rough start to the new year on Wall Street as stocks took a hit on this first day of trading. The DOW was down 276 points after rallying from a 470-point drop earlier in the day. Here with analysis is Wayne Stutzer, senior vice president at RBC wealth management. Good to see you again.
Wayne Stutzer: Thank you.
Ted Simons: Thanks for coming on. What happened today?
Wayne Stutzer: Well, I mean you know once the ball starts rolling downhill it seems like it picks up momentum, momentum, momentum. But, as you said, at the end of the day in the last couple of hours, that animal spirit came back into play and people were still, there's a lot of money sitting around and so when they saw things on bargain prices, they snapped it up.
Ted Simons: I checked the news and I'm seeing headlines, China markets in free-fall. And I'm thinking when that happens, usually the next morning something bad happens on Wall Street. Something bad happened on Wall Street this morning.
Wayne Stutzer: It rippled through from the Asian markets which were down, the Chinese market down 7%, they halted trading. We can halt trading, too, in this country but the market has to drop more than 10 %. And then Europe was down 3% and we were down the least of the worst, 2 %. Two things in China. One, economic numbers came out on their manufacturing sector. The Chinese manufacturing sector has slowed down significantly. And that's the big worry. How much further can it slow down? China several years ago, now over two years ago, announced they were trying to reengineer their economy from a demand economy, basically build it and they shall come to a more balanced economy like the United States has, more services, more consumer spending, and that transition is still being played out. But because of that transition, all the commodities that they were soaking up, half the copper in the world is being sold to China in the past decade. Iron ore, steel, oil, all those commodities were being used by the Chinese to a great extent and they don't need as much of them anymore and that sent ripples across the market, too. But secondly, the currency fell. And that story didn't get a lot of play. Everybody's worrying about the Chinese devaluing their currency. They got voted in to being part of the club, one of the major currencies of the world and they made a major move to drop their currency over this holiday and that actually was a bigger story that didn't get covered.
Ted Simons: What about the idea of us deciding we're going to raise interest rates, making thing a little more attractive here, at the same time, they're devaluing there?
Wayne Stutzer: That's correct, and the Europeans obviously saw the same thing so the euro did go up today. The central banks of the world are not all on the same page. We are the first to start to raise interest rates to get away from the zero depressionary policy we've been in. We are the first to actually really take a strong effort to get the economy away from a depression. The Europeans were late to the table, so were the Japanese and the Chinese and we're going to be the first to lead the world back out of the zero rate policy.
Ted Simons: If everything is devalued, if everything is rough in China, Europe is having its problems, as well, the Middle East, I'm sure what's happening with Saudi Arabia, that whole situation, has to have some effect.
Wayne Stutzer: It didn't have as much of an effect on oil that I thought. I said oil is going to have a big spike up but it didn't. It didn't. Maybe part of that is the fact that because of our ability now to utilize the shale rock formations which aren't in this country, they're all over the world but we created the technology to lift this thing, this oil out of the shale rocks at a cost effective rate. We won't have the types of spikes we saw in the past with oil, which is a great thing for U.S. consumerism and for the world's consumerism.
Ted Simons: Explain, please. If there's trouble around the world and the smart money wants to find a safe place, more than likely they're going to look to us, that's good for us, but the Chinese market goes down, Europe follows, drops, and our market hits points to the bad until it rallies and gets back up to . Why are we affected?
Wayne Stutzer: When the traders take over, because they can buy the same stuff basically at no cost to borrow. You're going to get these momentum swings on the downside and the upside, and fear, I can tell today, buy tomorrow, that's unfortunately the name of the game.
Ted Simons: Does China know what it's doing when it comes to markets?
Wayne Stutzer: You mean does it know when it comes to all other markets?
Ted Simons: When it comes to having its own stock market, its own version of Wall Street, when it comes to the free market, does China know what it's doing?
Wayne Stutzer: It's learning. It's like, you know, did we know what we were doing in the 1920s? It's new to them, they're learning, they're learning on the go so to speak but they are learning. The caps that they put in last year, you know, that market went up what 100% and then crashed all the way back down in a matter of six weeks. So I put that market very similar to the market that we saw in the roaring 20's.
Ted Simons: Speaking of time, is this a one to two day hit or something that could be --
Wayne Stutzer: I wish I had a crystal ball.
Ted Simons: Give me something here.
Wayne Stutzer: What I do think is that the U.S. economy is still on good footing. Our manufacturing sector is slowing down, too, but predominantly in the mining and the drilling sectors of it. The rest looks pretty good. Services look good. Gasoline prices are definitely a help to the economy so as long as the economy continues to grow and move forward, it's positive for the stock market over time.
Ted Simons" And that late rally was a positive indication?
Wayne Stutzer: It was. We'll see how the market opens tomorrow. It's one day at a time. Except if you're an investor.
Ted Simons: Good to have you here, thanks for joining us.
Wayne Stutzer: You're welcome, thank you
Wayne Stutzer:Vice president of RCB Wealth Management