This has certainly been an eventful week for equities. Early Thursday, the Dow Jones Industrial Average was down nearly 1,200 points across two trading sessions. You may be wondering why the mood on Wall Street turned so sour after a nearly-300-point Dow ascent on Monday. ¹
Just what is driving the market right now? Let’s take a look at three notable developments that may have had an impact.
1. The inversion of the yield curve.
The yield on the 3-year Treasury note exceeded the yield on the 5-year Treasury note on Monday. When this happens, some investors may fear an economic slowdown. A stronger signal may flash if yields on the 2-year and 10-year note invert.1
2. Trade talks between the U.S. and China.
On December 4, President Trump raised the possibility of more import taxes on Chinese goods, just days after meeting with Chinese President Xi Jinping at the G20 summit. It first appeared that tariffs on U.S. autos bound for China might be relaxed or eliminated, but the White House said no such agreement had been reached.1
3. The arrest of a top executive in Canada.
Chinese tech giant Huawei’s chief financial officer, Meng Wanzhou, was detained in Vancouver this week at the request of American officials. Charges may be linked to Huawei defying the current U.S. sanctions against Iran. This could escalate tensions already felt between China and the U.S.1
Fears overblown?
For bearish sentiment to dissipate, investors may have to agree that they are seeing a corrective episode and not the beginnings of a bear market.
Consumer confidence is currently at an 18-year high, and as respected Conference Board economist Lynne Franco told the Washington Post this week, she is not seeing the “sharp decline in expectations for the future” that usually hints at a recession.2
The Federal Reserve keeps an eye on Wall Street, and in view of its recent slump, it might elect to adopt a more dovish stance in 2019. In fact, the central bank has indicated it may consider all options on the table beyond December's meeting, where a rate increase is anticipated; this could slow the pace of rate increases next year, making it even more likely that the gloom could lift.1,2
While it never hurts to review your investment approach, periods of turbulence are to be expected. If you’d like to discuss your investment strategy for any reason, I’m just a phone call or an email away.
Sincerely,
Taylor McClish may be reached at (503) 239-3060 or Taylor.McClish@cunamutual.com
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Citations.
1 - cnbc.com/2018/12/06/the-market-is-tanking-this-week-heres-what-you-need-to-know.html
[12/6/18]
2 -
washingtonpost.com/business/2018/12/04/stocks-are-plummeting-us-recession-doesnt-look-imminent
[12/4/18]