A decade-long rally on Wall Street looks like its ending

22 December, 2018, 12:24 | Author: Sally Reid
  • Chair of the Federal Reserve Jerome Powell

A rise in short-term interest rates and a fall in the long-date yield rekindled worries of an inversion in the yield curve, where shorter-debt yields become higher than longer-term ones. USA stocks are on pace for their biggest December decline since 1931, the depths of the Great Depression.

Given the still-healthy USA economy, the Fed would normally keep gradually raising rates to make sure growth didn't overheat and ignite inflation. The benefit of that stimulus will likely fade in 2019, slowing growth to a more modest pace.

As they look ahead, investors are finding more and more reasons to worry. It's widely expected to slow down, but traders are concerned the cooling might be worse than they previously believed and that the US could eventually tip into a recession.

China and other emerging Asian markets "fell much earlier and harder and so far are holding above their October lows", said Oliver.

China's yuan weakened in early Asian trade after the country's central bank left its short-term borrowing rates unchanged on Thursday, choosing not to follow its USA counterpart.

Dysfunction in Washington isn't helping the situation, with another Trump administration cabinet member announcing his resignation this week and the government Friday night on the brink of a partial shutdown.

Treasury Secretary Steven Mnuchin said Thursday that financial markets are overreacting too the Fed's rate hike this week.

There are also fears that the brisk pace of USA growth this year reflected something of a sugar high, with the economy artificially pumped up by tax cuts and a boost in government spending. Traders often talk about a "Santa rally" that adds to the year's gains as people adjust their portfolios in anticipation of the year to come.

Drawing those two facts together and applying them to the ASX 200, what you get is this: a mining and banking sector at the forefront of market participant's anxiety. Large multi-national companies join smaller domestic ones in their losses.

Amazon fell 4.8 percent to $1,391 and Facebook gave up 4.6 percent to $127.30.

John Lynch, chief investment strategist at LPL Financial, said the flurry of news is taking its toll on nervous investors, even though the overall economy is good.

The Nasdaq is nearing a bear market, which is a 20 percent decline off its recent high.

The major USA indexes fell 7 percent this week and they've sunk more than 12 percent in December.

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Investors around the world have grown increasingly pessimistic about the global economy's prospects over the next few years. It's widely expected to slow down, but traders are concerned the cooling might be worse than they previously believed.

The S&P 500 fell 39 points, or 1.6 per cent, to 2,467.

The S&P 500 fell 61 points, or 2.4 per cent, to 2,445.

Another miserable day on Wall Street knocked 464 points off the Dow Jones Industrial average, bringing its losses since Friday to more than 1,700 points. The Nasdaq skidded 142 points, or 2.2 percent, to 6,385.

USA stocks were poised for further losses at the bell, with Dow futures and the broader S&P 500 futures down 0.3 per cent.

"Trade has been making headlines, but I think a gradual tightening of monetary policy has been the driving force behind recent market volatility".

On Friday the price of USA crude slipped 0.6 percent to $45.59 a barrel in NY. Lockheed Martin fell 1.9 percent to $260.14 and Raytheon shed 2.6 percent to $153.78.

Wholesale gasoline was little changed at $1.32 a gallon. Brent crude, the standard for worldwide oil prices, fell 1.3 percent to $53.67 a barrel in London.

Gold jumped 1 percent on Thursday, supported by a dip in the dollar and as global shares slumped after the U.S. Federal Reserve quashed hopes of a toned-down approach to its rate hike trajectory. The Fed's median economic growth rate for next year is now 2.3 percent, down from the 2.5 percent that officials had projected three months ago. The yield on the 10-year Treasury note stayed at 2.79 percent.

The two-year US yield stood at 2.665 per cent, just 0.111 per cent less than the 10-year yield.

In September, nine of the 16 policy makers forecast the Fed should raise rates three or more times next year, while seven officials estimated the economy would benefit from two hikes or less.

The euro traded at $1.1382, off Wednesday's high of $1.14395 hit before the Fed's policy announcement.

Pan Pylas contributed to this story from London.

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