Many investors found 2015 to be a challenging year. Uncertainty over a looming interest rate hike by the Federal Reserve, along with falling energy commodity prices, led to substantial volatility in the markets. Further, the Shanghai Composite Index suffered a major crash in June 2015 that weighed on international markets. While investors hope for better market conditions in 2016, several challenges continue to create uncertainty moving into the new year.

Energy Commodity Prices

Low oil and natural gas prices continue to create headwinds for the U.S. economy. Although consumers welcome low gas prices, giving people more to spend in stores or online, the low prices are a drag on energy companies, which are struggling with lower revenues from sales of their products. Many large energy companies that paid attractive dividends are being forced to cut those dividends to free up cash flow. They are also cutting back on jobs as they reduce capital investment and stop production for some wells. This hurts stock prices for energy companies and weighs on income investors who sought those yields for their portfolios.

The major bulk of the drop in crude oil happened during the last six months of 2014. Oil was trading over $100 a barrel in June 2014, but dropped to around $58 by the end of the year. Still, oil has only dropped further in 2015. It was trading around $37 a barrel in mid-December. This is another substantial decline of around 36%.

Many countries around the globe are dependent on revenues from their natural resources. These commodity-based economies are suffering economic contractions. It is estimated that Russia loses $2 billion in revenue for every $1 drop in the price of crude oil. The Russian government predicts a recession in 2015 or 2016. Economic pressure around the globe may influence the U.S. economy moving into 2016. Commodity prices continue to weigh on the markets.

European Economic Uncertainty

The European economy also encountered significant difficulty in 2015, and the picture still remains cloudy heading into 2016. Greece has been experiencing a significant debt crisis since 2009. The crisis reared its head during the summer of 2015. It looked at one point like Greece may leave the European Union. Financial commentators referred to this as a possible Grexit, and it was an area of concern for global markets.

Greece was close to defaulting on its debt payments. Crisis was narrowly averted when the European Central Bank approved a third bailout agreement for the country. However, the debt issue in Greece remains unresolved at this point. The bailout was a short-term fix for a much larger problem. This issue could easily rear its head again in 2016.

In addition, the European economy remains sluggish. The European Central Bank (ECB) began a quantitative easing program in January 2015 with a massive bond buying program to support the economy. Then in December, the ECB cut the eurozone deposit rate to -0.03%. This resulted in a large jump in the price of the euro versus the U.S. dollar.

China's Economic Slowdown

China’s stock market crash in the summer of 2015 led to higher volatility in markets around the world. The Chinese government has been shifting the country's economic focus from the industrial sector to the service sector. The current Chinese premier is targeting 7% annual gross domestic product (GDP) growth. However, stock market volatility, a looming debt problem and slowing economic growth indicate there may be concerns about China in 2016.

Chinese economic data for the third quarter of 2015 showed a slowdown in the manufacturing sector and some weakness in the service sector. One issue with financial data from the Chinese government is its veracity. Many often question the accuracy of the data being presented. It is difficult to ascertain the true state of the Chinese economy.

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