Dow pares loss, turns higher in volatile start to 2019 as weak Chinese data spark fears
Dow pares loss, turns higher in volatile start to 2019 as weak Chinese data spark fears
Bear Market is a term that sends fear into Wall Street and investors. What does it mean? And how does it affect both Wall Street and Main Street? Adam Shell explains.
The Dow kicked off the first trading day of 2019 with the same type of wild swings that it suffered last year, erasing early losses and turning higher as it attempts to rebound from a bruising period for U.S. stocks that resulted in its biggest annual drop since 2008 last year.
In early afternoon trading Wednesday, the Dow was back in positive territory, after an early plunge. The Dow Jones industrial average, which had fallen nearly 400 points, was up about 500 points. The Standard & Poor's 500 stock index, a broader gauge of the U.S. market, was trading 0.4 percent higher.
The Dow, which declined 5.6 percent in 2018 -- its biggest decline since the financial crisis 10 years ago -- was on the defensive early Wednesday after a weak December manufacturing report in China raised fears about a slowing global economy.
Volatility returned to Wall Street in the final three months of the year, with both the Dow and S&P 500 narrowly avoiding a bear market drop of 20 percent after cratering under the weight of fears of recession, concern about the Federal Reserve hiking interest rates too aggressively, trade war uncertainties and signs of a global economic slowdown.
Many of the same worries that plagued the market last year are still weighing on markets as the calendar flips to 2019.
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Market returns in 2019 will hinge on Fed interest rate policy, whether the economy can continue to grow and avoid recession, and whether the U.S. trade fight with China can be resolved.
Much of the market turbulence in late 2018 was caused by fears that the Fed, which hiked interest rates for a fourth time in December to a range of 2.25 percent to 2.5 percent, would do harm to the economy if it continues to hike rates in 2019. At its meeting last month, Fed chairman Jerome Powell said the central bank has lowered its planned rate hikes next year to two from three.
But even two hikes don't jibe with the forecast of zero hikes from investors, according to futures markets tracked by CME Group.
The stock market will continue to come under pressure if the Fed doesn't back off, as its moves are already weighing on markets and the economy, warns Barry Bannister, a strategist at investment firm Stifel.
"We will see further downside if they do not stop tightening (rates) for most -- or all -- of 2019," he told clients in a Jan. 2 market outlook piece.
Another obstacle facing stocks is slowing profit growth. Investors are expecting profits of U.S. companies to slow markedly from 2018, when earnings growth topped 23 percent, according to earnings tracker Refinitiv. For 2019, analysts now see profits for all the companies in the S&P 500 growing 7.3 percent, down from a forecast of 10.2 percent three months ago.
The stock market is coming off a difficult year marked by four biggest one-day declines in the Dow's 122-year history. The blue chip Dow ended the year 13 percent shy of its recent peak, while the S&P 500, which fell 6.2 percent last year, finished last year down 14.5 percent from its September all-time high.
The Nasdaq composite, home to popular technology stocks that led the market surge early in the year but which suffered massive declines in last year’s final quarter, finished 2018 down 3.9 percent and 18.2 percent below its August all-time high. The small-company Russell 2000 stock index suffered the biggest decline, tumbling 12.2 percent and enters the new year 22.5 percent from its peak and deep in bear market territory.
Investors are bracing for more volatility but are hoping for a return to gains in the new year.
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