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Dow Jones Recovers by 5% But Why Are Investors Still “Shell-Shocked”?

Originally published on: CCN
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December 27, 2018


SkyBridge Capital Senior Portfolio Manager Robert Duggan

Following a troubling performance on Christmas Eve, on December 26, the Dow Jones recorded a 5 percent increase of more than 1000 points, avoiding a bear market.

Technology stocks in the likes of Amazon have recorded strong daily gains possibly due to the oversold conditions the market demonstrated.

During Christmas, the e-commerce giant said that it reached record high sales, pushing the stock price of Amazon up 7.1 percent on the day.

Investors Still Nervous, Not Exclusive to the Dow Jones

The Dow Jones experienced a relatively strong recovery during a period in which investors generally expected U.S. markets to see extended sell-offs throughout the last week of December, until the year’s end.

However, according to Robert Duggan, a senior portfolio manager at SkyBridge Capital, many investors exited the U.S. stock market anticipating the uncertainty and instability in global markets to intensify.

The investor said:

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.

The stagnation in the progress of resolving the trade war between the U.S. and China supported by the Federal Reserve’s increasing interest rate have continued to take a toll on the global economy and major stock markets in leading regions such as Japan, South Korea, and China.

As the Dow Jones dropped by over 2 percent on Christmas Eve, on the day after Christmas, the Nikkei 225 abruptly plunged by five percent, officially tumbling into a bear market. Since October, the Nikkei 225 dropped by 21 percent, by a similar margin as the Nasdaq Composite.

Gregory Daco, the chief U.S. economist for Oxford Economics, said that the lack of momentum in U.S. markets has started to accelerate the slowdown of the global economy, affecting markets like Japan and China.

“What’s been holding the U.S. up so far and preventing a sharper global slowdown is the consumer. If the U.S. economy starts to slow at this juncture, that would accelerate the overall slowdown in global momentum.”

Growing Concern About the Economy

The government shutdown, the Federal Reserve’s interest rate, and the U.S.-China trade war have led investors to fear the short-term trend of the market, with some anticipating a full-blown recession to hit the U.S. economy.

“There is definitely a growing concern about the future of the economy, that the Fed tightened too quickly and that DC is a mess and isn’t going to get anything done. Until there is some more clarity on what DC is going to look like, markets will struggle,” said Peter Tchir, a chief macro strategist at Academy Securities.

Investors are not relieved by the strong performance of the Dow Jones on the day because of the unusual volatility U.S. markets have demonstrated in the past several weeks and with the Dow Jones still at risk of plunging into a bear market, the tension of most investors is likely to extend across the first quarter of 2019.

Featured image from Shutterstock. Robert Duggan photo from LinkedIn.

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