It is no secret that 2016 has been a complicated year. U.S. stocks have risen while bond yields remain muted. The election has many on edge, as does the central bank trend. Now there could be at least some cracks in the bull market’s armor after seven and a half years of gains. And there are of course economic risks to consider for the base economy.
There is more than just one issue in banks. Then there is the 2016 election — oh, and the calendar looks crummy for stocks as well. Oil remains a risk, up or down. International watchdogs keep ratcheting down global GDP growth, and U.S. GDP growth may remain muted. Stock market valuations and capital returns could spell trouble. And what about the central banks and negative interest rates?
24/7 Wall St. has jumped right into the big risks impacting the market as we are about to head into the fourth quarter of 2016. It is not just a bash on stocks, but maybe on everything that has a price or can be invested into. We haven’t even gone over geopolitical risks and terrorism.
Before you hit the panic button, remember a few things. Investors have bought every single pullback with vigor. Investors also have to invest somewhere, and negative or no yield on cash will not satisfy a single long-term goal. Even after retail weakness, the most recent consumer confidence was stellar.
These are not in any specific order, nor have they been ranked. Here are 10 things that might be scaring the hell out of investors heading into the fourth quarter of 2016.
The 2016 U.S. Presidential Election
Let’s get beyond any individual’s politics here for a moment. The reality is that there is dissent among the Democrats and Republicans alike. May Democrats do not want to vote for Hillary Clinton and many Republicans do not want to vote for Donald Trump (seriously, go look for bumper stickers and see how few you see). Both candidates seem to have policies that are not what their historical counterparts would be endorsing. Many insiders and outside worry about the trade and tax policies being presented in 2016; ditto for how other social programs will be paid for. This is of course very complicated and it happens almost every election, but this time feels different. Enough said.
Is U.S. Bank Trust Broken Again?
Wells Fargo & Co. (NYSE: WFC) may have single-handedly destroyed the trust that Main Street was getting back about the banking sector. Despite the bank having been the most prestigious in America, the cross-selling that led to millions of unauthorized account openings has destroyed a lot of good will that was already fragile. If one fear should come out of John Stumpf’s grilling in testimony in Washington, D.C., it is not just that Stumpf’s job might be at risk. The real fear is that this cross-selling is now going to create a Senate or House grilling of all the major banks ahead — it is a serious risk if you watched the testimony. Like deja vu, all over again. More regulation and capital restrictions seem more likely as well.
Deutsche Bank A.G. (NYSE: DB) has not been as forthcoming or realistic about its financial situation after a $14 billion fine is being sought. The bank reportedly has had hedge funds limiting exposure to the bank’s exposure. Whether this is true remains to be seen. Either way, the reality is that this is going to bring fears of the financial crisis all over again. And all-time lows for the American depositary shares cannot offer any comfort. Then there are the macro issues in Europe. All those risks for Brexit were contained initially, but the reality is that the path and the outcome remain in the air ad may not be known until 2017. And Italy has a vote and referendum coming in December that is not yet known.