Northwest Arkansas Democrat-Gazette
Stocks plunge again after Trump hits Fed
Major stock indexes fell more than 2 percent Monday, nudging the market closer to its worst year since 2008. Stocks are on track for their worst December since 1931.
The Dow Jones industrial average sank 653.17 points Monday, or 2.9 percent, to 21,792.20. The Nasdaq skidded 140.08 points, or 2.2 percent, to 6,192.92. The Russell 2000 index of smaller-company stocks gave up 25.16 points, or 2 percent, 1,266.92.
The S&P 500 index slid 65.52 points, or 2.7 percent, to 2,351.10. The benchmark index is now down 19.8 percent from its peak on Sept. 20, close to the 20 percent drop that would officially mean the end of the longest bull market for stocks in modern history — a run of nearly 10 years.
“Even if 20 percent is just a psychological number, it is psychologically very important,” said Chris Zaccarelli, chief investment officer at the Independent Advisor Alliance. “We’ve been trading like we’re already in a bear market for the past few weeks.”
Monday was the worst final pre-Christmas holiday session on record for the S&P 500, according to data compiled by Bloomberg. It was also the busiest Christmas Eve since 2010, with more than 1.7 billion shares changing hands in the truncated session.
“The more volatile things get, the more volume surges,” Michael Antonelli, equity sales trader at Robert W. Baird, said in an email. “People don’t care it’s a session before Christmas when the U.S. equity market is acting like this.”
The market has been roiled for most of the month
over concerns about a slowing global economy, the escalating trade dispute with China and another interest rate increase by the Federal Reserve.
The past two trading days, however, have been dominated by something else: major losses after tweets from the president criticizing Fed Chairman Jerome Powell and the central bank.
“The only problem our economy has is the Fed,” President Donald Trump tweeted Monday. “They don’t have a feel for the Market, they don’t understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders. The Fed is like a powerful golfer who can’t score because he has no touch — he can’t putt!”
Peter Conti-Brown, a financial historian at the Wharton School of the University of Pennsylvania, said: “We’ve never seen anything like this full-blown and full-frontal assault. This is a disaster for the Fed, a disaster for the president and a disaster for the economy.”
On Sunday, Treasury Secretary Steven Mnuchin made a round of calls to the heads of the nation’s six largest banks in an attempt to calm jitters. Mnuchin released a statement Sunday saying he had spoken with the bank executives and had been told “they have ample liquidity” to keep lending. Economists were not aware that this was a concern — until Mnuchin said he was monitoring it during time away from a vacation in Mexico.
“From all indications, Secretary Mnuchin was attempting to ease market concerns
but very well did the exact opposite,” said Andrew Kositkun, foreign exchange analyst at City National Bank in Los Angeles.
Mnuchin said he would spend Monday on the phone with the President’s Working Group on Financial Markets, a group of top officials known colloquially as the Plunge Protection Team. The group hasn’t been very active since 2008 and 2009, when the nation was in a financial crisis.
“If you wanted to create financial market volatility, this is how you would do it. Why a Treasury Secretary is in that game is beyond me,” tweeted economist Justin Wolfers, echoing the sentiment of many economists and traders.
Most economists expect growth to slow in 2019, not slide into a full-blown recession. In fact, many economic barometers still look encouraging. Unemployment is at 3.7 percent, the lowest since 1969. Inflation is tame. Pay growth has picked up. Consumers increased their spending this Christmas season.
Fed board members are nominated by the president, but they’ve historically made decisions independent of the White House. Trump nominated Powell last year to become chairman.
But the president has voiced his anger over the Fed’s decision to raise its key short-term rate four times in 2018. Those measures are intended to prevent the economy from overheating.
Trump’s latest remarks only created more uncertainty for unnerved investors who have seen all of this year’s stock market gains evaporate.
“Now we’re having a correction and we’re down for the year, so the narrative people get drawn to is that perhaps his more unpredictable policies are bad for the market,” said Craig Birk, chief investment officer at Personal Capital. “The separation between the president and the Fed maybe just causes a little more concern than it would have a few months ago.”
Going back to the 1940s, there have been 14 bear markets, with half of them taking place during a recession, according to LPL Research. Those that came during an economic downturn were more painful, with the S&P 500 falling 37 percent on average, while bear markets with no accompanying recession lost 24 percent at the trough on average.
“As we’ve seen over the past 40 years, if the economy is on firm footing, bears tend to stop around a 20 percent loss and the occurrences of a massive drop are quite limited,” said Ryan Detrick, LPL senior market strategist.
Technology stocks, health care companies and banks took some of the heaviest losses in the sell-off.
Wells Fargo slid 3.4 percent, Microsoft fell 4.2 percent and Johnson & Johnson lost 4.1 percent.
U.S. markets are closed today for the Christmas holiday. They will reopen on Wednesday. Information for this article was contributed by Alex Veiga and Josh Boak of The Associated Press, Heather Long of The
Washington Post, Elena Popina of Bloomberg News and Jim Puzzanghera of the Los Angeles Times.