The steep losses in risk assets Monday can be laid to any number of causes, notably a renewed plunge in China stocks and escalating tensions between Saudi Arabia and Iran. In deference to Brother Occam, however, the simplest explanation is probably the best: economies around the globe are falling short of investors’ expectations.
 
To be sure, the flip of the calendar probably inspired some selling of profitable positions, which helped to produce a drop of 1.5% in the Standard & Poor’s 500, the worst first day of trading of any year since 2001 and the sixth-worst since 1932. So-called FANG stocks — Facebook, Amazon.com, Netflix and Alphabet  — took big hits Monday after their 2015 gains of 34% to 134%. Taking profits in 2016 delays having to render capital-gains taxes unto Uncle Sam until April 15, 2017.
 
And after the 7% drop in Shanghai that tripped circuit-breakers there, the selling circled the globe to Europe and then on to the Americas. The liquidation appeared to subside late in the New York session to trim the losses on the major averages. Perhaps the monies that get deposited in retirement funds at the beginning of a quarter got put to use, but that’s only a guess.
 
What may be more telling was the action in crude oil. An early rally petered out and nearby U.S. futures settled up only 28 cents at $36.76 a barrel. That oil couldn’t advance on fears of a Sunni-Shiite conflict in the Middle East shows the depth of the bear market. That is matched by the slump in other industrial commodities such as copper, which plunged 2.6% for the front Comex futures.
 
All of which was consistent with weak purchasing managers’ indices for both China and the U.S., which sank farther below the 50 mark in December, which indicates contracting industrial activity. Construction spending in the U.S. also slumped in November.
 
The softer purchasing managers and construction data led to a sharp downward revision in the Federal Reserve Bank of Atlanta’s estimate of fourth-quarter gross domestic product, to an annual rate of 0.7%, down from an already paltry 1.3% pace.
 
China’s weak data bolster the notion that its policy stimuli haven’t been effective in spurring growth, according to BCA’s Daily Insights. And as colleague Jon Laing writes in Up & Down Wall Street in this week’s Barron’s print edition, China’s move to a consumer-led economy isn’t likely to produce the growth the rest of the world has come to expect.
 
Perhaps more importantly, adds BCA, “the dramatic negative global market reaction to the Chinese equity rout underscores that investors’ confidence in the global recovery is increasingly fragile.”
 
This comes just as the Fed is reducing its monetary accommodation and the People’s Bank of China attempts to slow the decline in the yuan, which limits its ability to ease policy. Meanwhile, the aggressive quantitative easings pursued by the Bank of Japan and the European Central Bank are mainly boosting their asset markets rather than their real economies.
 
No wonder investors’ confidence is flagging. After a losing year for the stock market in 2015, projections of 10% returns for 2016 look optimistic. And that’s after just one day of trading in the new year.