By Chris Matthews and Mark DeCambre, MarketWatch
All three major equity benchmarks are in correction
U.S. stocks finished sharply lower Monday in a volatile session
that saw the S&P 500 and Nasdaq post fresh year-to-date closing
lows, extending the worst start to a December since 1980.
How did the benchmarks trade?
The Dow Jones Industrial Average retreated 507.53 points, or
2.1%, at 23,592.98, the S&P 500 fell 54.01 points, or 2.1%, at
2,545.94, and the Nasdaq Composite Index retreated 156.93 points to
6,753.73, a drop of 2.3%.
The S&P 500 closed at its lowest level since October of
2017, the Nasdaq finished at its lowest since November of 2017,
while the Dow closed at lowest level since March 23, according to
Dow Jones Market Data.
Read: Here's why the Fed won't save the stock market, despite
its worst December start since 1980
(http://www.marketwatch.com/story/heres-why-the-fed-wont-save-the-stock-market-despite-its-worst-december-start-since-1980-2018-12-15)
What drove the market?
With just a handful of trading sessions left in 2018, investors
remained unhinged by the major macro headwinds that have buffeted
markets in recent months: rising interest rates, slowing global
growth and U.S.-China trade tensions.
Of particular interest is the Federal Reserve, which will
conclude its final policy meeting of 2018 on Wednesday. Although
the market is widely expecting a rate increase of a quarter of a
percentage point, more influential investors from Stanley
Druckenmiller
(https://www.wsj.com/articles/quantitative-tightening-not-now-11544991760)
to Jeffrey Gundlach
(https://www.cnbc.com/video/2018/12/17/jeffrey-gundlach-federal-reserve-should-not-raise-interest-rates-december-jay-powell.html)have
called on the Fed to take a wait-and-see approach and decline to
hike rates this week.
This reflects the bearish sentiment that has consumed investors
in recent weeks and which helped fuel Monday's selloff. As recently
as September, the central bank was projecting a rate increase this
week, plus three more in 2019.
Since that time, evidence of slowing global growth, a rising
dollar and slower inflation has helped encourage Fed officials to
become more dovish in their public statements, while fed funds
futures markets show investors predict only one
(https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html)
or no rate increases next year.
These same factors, plus fears that the Fed won't respond
dovishly enough, are causing anxiety on Wall Street, as the bulls
and bears debate whether the current pullback is another in a
series of corrections that have dotted the nearly 10-year-old bull
market, or the beginning of a lasting bear market.
On Friday, evidence of the effects of rising U.S.-China trade
tensions, and of a broader slowing of the Chinese economy, cropped
up as China released data
(http://www.marketwatch.com/story/china-economic-activity-mostly-slowed-in-november-2018-12-14)
that showed both industrial output and retail sales for November
missed economists' forecasts.
A slowing Chinese economy underscores the importance of
continuing U.S.-China trade negotiations, and leaders of both
nations have been eager to promote optimism that a deal will be
reached before the Trump administration's March 1 deadline, when it
said it would raise tariffs on Chinese imports further.
Traders are therefore also looking forward to speech by
President Xi Jinping, to be delivered Tuesday morning in Beijing
(http://www.xinhuanet.com/english/2018-12/16/c_137677673.htm) on
the topic of economic reform, for any hints as to the trajectory of
trade negotiations.
What are analysts saying?
Vincent Reyes, director of trading operations at SEIA, blamed
Monday's selling on growing fears over Wednesday's policy
announcement from the Federal Reserve.
"The market feels like the Fed has to hike Wednesday," to
protect its image of independence amid calls from the president to
stop raising rates, he told MarketWatch. "But the logic for hiking
is weak."
Reyes pointed to an interview with Gundlach
(http://www.marketwatch.com/story/doublelines-gundlach-says-hes-pretty-sure-that-this-is-a-bear-market-2018-12-17)
as one possible reason losses accelerated Monday, after the famed
investor told CNBC that he thinks we are already in a bear
market.
Randy Frederick, managing director of active trading and
derivatives at Charles Schwab blames Monday's downturn on macro
headwinds, "and the lack of any good news for traders to turn
to."
"Today's gyrations are typical with this level of volatility,"
he told MarketWatch, arguing that with strong evidence of slowing
global growth, investors will need convincing evidence that the
U.S. economy can withstand difficulties abroad before jumping back
into the market.
Unfortunately, he sees little hope for such evidence before
corporate earnings season in mid-January. "Anybody hoping for a
Santa Claus Rally this year will be disappointed," he said.
"The problem for investors is that even if you do get better
news on trade, and get better news from the Fed, you still have the
problem of slowing growth," Alec Young, managing director of global
markets research at FTSE Russell, told MarketWatch.
"You can argue the market looks cheap," he added, "but there is
a lack of a catalyst" to reverse increasingly negative sentiment.
"People have been buying the dips, but it's just not working, and
at a certain point that will lead to a buyer's strike," Young
argued.
What data were in focus?
A reading of industrial activity in the New York region, the
Empire State index for December, showed manufacturing activity
growing at a sharply slower pace compared with November
(http://www.marketwatch.com/story/empire-state-factory-index-slumps-in-december-2018-12-17).
The index fell 12.4 points to 10.9 in December, below consensus
expectations of 21, according to a survey by Econoday.
Home builders' confidence tumbled in December
(http://www.marketwatch.com/story/home-builder-confidence-hits-312-year-low-as-housing-crunch-worsens-2018-12-17),
according to the National Association of Home Builder's monthly
index, which fell to 56 in December, its lowest level since May
2015.
What stocks were in focus?
Shares of Best Buy Co Inc. (BBY) were in focus after Bank of
America downgraded the stock to underperform. The stock fell 5.7%
Monday.
Johnson & Johnson(JNJ) shares remained under pressure
Monday, with the stock slipping 2.9%, after a more than 10% decline
Friday following allegations
(http://www.marketwatch.com/story/johnson-johnson-stock-slammed-by-report-it-knew-of-asbestos-in-baby-powder-2018-12-14)
that it knew that its popular baby powder product was contaminated
with asbestos.
Jack in the Box Inc. (JACK) stock rose 2.1% Monday, after the
firm disclosed that it is exploring a possible sale.
Goldman Sachs Group Inc. (GS) shares fell 2.7%, after the
Malaysian government filed criminal charges against the bank and
one of its former partners, in connection with the 1MDB financial
scandal.
How did other markets trade?
Asian stocks closed mixed Monday
(http://www.marketwatch.com/story/asian-shares-inch-higher-ahead-of-meetings-by-fed-chinas-economic-policymakers-2018-12-16),
with the Nikkei rising 0.6%, Hong Kong's Hang Seng virtually
unchanged and the Shanghai Composite Index edging 0.1% higher.
In Europe, stocks closed broadly lower
(http://www.marketwatch.com/story/european-markets-drop-as-gloom-spreads-to-online-retailers-2018-12-17),
with the Stoxx Europe and FTSE 100 retreating on Monday.
Crude oil reversed earlier gains
(http://www.marketwatch.com/story/oil-bounces-back-from-weekly-decline-2018-12-17),
down 4%
(http://www.marketwatch.com/story/oil-bounces-back-from-weekly-decline-2018-12-17),
while gold advanced
(http://www.marketwatch.com/story/gold-finds-footing-as-dollar-softens-ahead-of-fed-decision-2018-12-17)
nearly 0.7% and the U.S. dollar retreated
(http://www.marketwatch.com/story/dollar-heads-lower-at-start-of-busy-central-bank-policy-week-2018-12-17)
0.3%.
(END) Dow Jones Newswires
December 17, 2018 17:12 ET (22:12 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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