The sky isn’t falling, but stock prices are certainly under pressure. The recent carnage has engulfed stocks from virtually all over the world. The Chinese started the ball rolling with weak economic numbers that included its manufacturing as well as the all-important consumer service sector.
China's economy is worse than reported. Bank deposits, car sales and manufacturing indicate that their economy is likely growing at half the pace that their published GDP numbers show. China’s weakening economy is causing the yuan, China’s currency, to fall, which could cause commodity prices to drop further.
And declining oil, metals and commodity prices will probably produce another bout of selling in stocks around the globe.
North Korea’s nuclear bomb testing is unnerving, but the affect on stocks should be short-lived. However, rising tensions in the Middle East between Saudi Arabia and Iran could provide an excuse for the Saudis to open the spigots further and flood the world with cheap oil. The Saudis would love to inflict pain on U.S. oil frackers, as well as Iranian oil drillers who will get the green light to produce more oil when economic sanctions are lifted.
We have learned that low oil prices equate to low stock prices. In my opinion, the weak Chinese economy and lower oil prices will cause havoc to U.S. stock prices in the first half of 2016. Some of these problems will abate in the second half of 2016, which will scare the bears and spark a solid bull market.
I have included very conservative stocks and ETFs in this month’s Cabot Value Model to ease the pain if the stock market falters during the next few weeks or months. I advise selling speculative growth stocks with high price-to-earnings ratios and switch into conservative stocks that are undervalued.
This is an excerpt from Cabot Benjamin Graham Value Investor, which features the very best undervalued stocks to buy right now. Chief Analyst J. Royden Ward tells you exactly which undervalued stocks to buy and when to take profits. This advisory is ideal for conservative investors.
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