The biggest stock market crash ever is here

Economists believe that 2016 will be another year of falls in store for the UK stock market. The reasons behind are dividends facing the axe and share prices that need to reach much lower levels to tempt investors back in.

Currently, UK stock market is heavily weighted towards the commodity sector, with almost a quarter of the companies in the UK’s blue-chip index relying on the mining or oil-and-gas sectors for profits. The world’s largest buyer of commodities, China, is slowing down – and the prices of nearly all commodities are collapsing. Last year the big theme was tumbling profits. In the absence of a strong recovery in commodity prices, they will continue to fall in 2016.

Dividends can only be paid out to investors from a level of profit that is sustainable over the long term. Lower profits will mean lower dividends. The stock market, like all things, is cyclical, and there are worrying signs we are nearing a peak. The era of record low interest rates is coming to a close. The end of cheap debt may eat into corporate profits, as will steadily rising wages. The prospect of rising interest rates has also weighed heavily on highly indebted utility groups National Grid, SSE and Centrica. They will probably continue to struggle. The end result of all of this will be another recession, followed by aggressive central bank action to fight falling equity prices and negative growth

A recent study showed that the market appears to be neutral regarding the effect of outsourcing on client firms and the economy as a whole. The market does however react favorably to outsourcing with respect to vendor firms.

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