Don’t Get Excited: Dow Jones Expected to Continue its Decline After Big Rally
Originally published on: CCN
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December 27, 2018
On December 26, following Christmas, the Dow Jones recorded a gain of over 1,000 points. But, shortly thereafter, the Dow Jones fell by nearly two percent, unable to recover from a bear market territory.
Why Investors Shouldn’t Get Excited
Earlier, CCN reported that despite the five percent gain of the Dow Jones, investors in U.S. markets remain concerned with regard to the short-term performance of the U.S. stock market.
SkyBridge Capital senior portfolio manager Robert Duggan said that investors have never been this confused and shell-shocked, uncertain of their positions in the stock market.
“I haven’t seen managers this shell-shocked and confused in a very long time. People have been heading for the exits and selling their positions over the last two weeks,” Duggan said.
The uncertainty of investors toward the U.S. stock market generally comes from two major factors: the ongoing trade war between the U.S. and China and the Federal Reserve’s rising interest rate, none of which are on track to being resolved in the upcoming months.
Erik Nielsen, the chief economist at UniCredit Bank in London, went as far to say during an interview with the Wall Street Journal that the volatility in U.S. markets is “turbocharged” by the abrupt policies implemented by the government, and the recent downturn of the market could lead the U.S. into a full-blown recession by 2020.
[Stocks are declining] because the U.S. is entering [at least] a cyclical downturn, most likely ending in a mild recession in 2020.
China, the counterpart of the U.S. trade war, has also seen its major stock indexes including the SSE Composite experience a steep decline in the past several weeks, unable to sustain momentum.
Several analysts have said that the U.S. government shutdown could worsen the downturn of the U.S. stock market and that its poor performance could extend across the first quarter of 2019.
“What would be worrisome is if businesses start to lose confidence. They’ll pull back on hiring, and investment, and it’ll become a self-fulfilling prophecy, where negativity in the stock market turns to negativity in the [broader] economy,” Kathy Bostjancic, head U.S. financial market economist at Oxford Economics, said.
Can the Dow Jones Avoid a Bear Market
The Dow Jones is approximately 500 points away from tumbling into a bear market. Based on the trend of most U.S. markets, an additional drop in the Dow is highly likely.
With the country’s largest technology stocks in the likes of Amazon and Apple losing three to seven percent on the day, all of the major stock indexes in the U.S. are expected to struggle until the year’s end.
Although the magnitude of the downturn of the stock market remains to be seen, most analysts are expecting the high volatility rate of U.S. markets to be sustained throughout the weeks to come.
Featured Image from Shutterstock. Price Charts from TradingView.
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