On December 24, the eve of Christmas, the three major stock indexes in the United States fell sharply, present a rare "Black Christmas" in the capital market. As of the close, the Dow was down 653.17 points, or 2.91%, to 21792.20 points; the S&P 500 fell 65.52 points, or 2.71%, to 2351.10 points; the Nasdaq fell 140.08 points, or 2.21%, to 6192.92 points. International oil prices tumbled more than 6% and U.S. oil hit a 17-month closing low. The drop in U.S. stocks also brought a new round of global market decline. UK's FTSE 100 closed down 0.52% to 6685.99 points. The French CAC40 index fell 1.45% to 4626.39 points. The Japanese Nikkei fell below the 20000 points and eventually closed at 19155 points, it has fallen more than 20% from its Oct 2 high, and officially entered a bear market. China's stock market was also affected by the decline. The Shanghai Composite Index closed at 2504.82 points on the 25th, down 0.88%; Shenzhen Stock Exchange Component Index closed at 7332.35 points, down 0.81%.
The decline in U.S. stocks market since December shows that the market is full of concerns about a number of factors, including the slowdown in U.S. economic growth, the negative impact of the U.S. government's closure on the economy, and the "struggle" between the White House and the Federal Reserve. The S&P 500 is officially in bear market territory, having fallen 20.06% since its peak of the year. Before that, the Nasdaq has officially entered a bear market, the retracement rate has reached 23.89% during the year. The Dow is only one step away from the bear market, and the highest retracement rate since the year has reached 19.14%. After a week of decline, the "Black Christmas" on Wall Street suggests that market confidence has declined, and expectations have been adjusted, which is difficult to change in the short term.
In the long run, as Anbound had warned, the contraction in global liquidity brought by the Fed's interest rate hike will lead to the reassessment and adjustment of global markets, where the adjustment has not yet been put in place. Besides, the fragile world economy cannot withstand the monetary normalization of central banks around the world, which remain maladaptive in the process of raising interest rates. The contraction in global liquidity, which has shifted emerging markets into contraction, is now being transmitted to the U.S. market, ending the U.S. bull market that has lasted for nearly 10 years. This process is expected to continue with the Fed's gradual of rate hikes. The U.S. President Donald trump has blamed the decline in the capital markets on the Fed's policy of interest rate hike, saying that the Fed is the "only problem" in the U.S. economy.
On the other hand, the U.S. government's response has added more uncertainty to the market. On the afternoon of December 23, the U.S. Treasury secretary, Steven Mnuchin held an emergency meeting with the heads of six Wall Street financial giants, urging them to take action to restore investor confidence in the U.S. economy as soon as possible. Among the big Wall Street names in attendance were JPMorgan Chase CEO Dimon, Bank of America CEO Moynihan, Goldman Sachs CEO Solomon, Morgan Stanley CEO Gorman, Wells Fargo CEO Sloan and Citigroup CEO Colbert. After the talks, the Treasury Department said that all the big Banks had confirmed they had sufficient liquidity to increase the credit supply to consumers and businesses community. Mnuchin added the U.S. economy will continue to grow for some time in which the consumer spending and business capital spending remain strong.
In addition, in a hastily organized meeting on December 24, Mnuchin met the officials from five financial market regulators, namely the Federal Reserve, the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Federal Deposit Insurance Corporation (FDIC) and the Treasury Department's Office of the Comptroller of the Currency (OCC). The regulators briefed Mnuchin on their plans to monitor the market during the government shutdown and assured him that they had not seen any market anomalies despite the recent plunge.
However, under the escalation of risk sentiment, the actions of government departments have instead raised suspicions in the market. Some analysts said that the market was not initially concerned about liquidity, but a series of moves by Mnuchin prompted investors to doubt whether there were bigger systemic problems in the U.S. market. Bloomberg quoted Nathan Thooft, the head of global asset allocation at Manulife Asset Management, as saying: "My first reaction is that this may not be a good sign…. Now these things show that the government may be concerned about more serious and broader factors." The continuous decline in the U.S. stocks in the past two days also shows that market expectations have completely changed, and any "bailout" actions by government departments will be deemed as the beginning of more serious problems.
The core of the American economy is on Wall Street. Judging from the dramatic adjustment of the U.S. capital market to date, the market crash has touched the core interests of Wall Street. Since the 2008 financial crisis, although the crisis originated in the United States, the global market has always had confidence in the powerful U.S. economy. Therefore, under the background of quantitative easing around the world, the artificially created "new bubble" has replace the busted "old bubble", the global excess capital has preferentially flowed to the strong U.S. market, prompting the rapid recovery of the US capital market from 6469.95 points in 2009 to more than 26000 points in 2018. But after a decade, this market confidence has come to a periodic end. At the beginning of U.S.-China trade friction, Anbound's research team once pointed out that when the U.S. stocks market fell more than 20%, Wall Street would be "scarred". Now, Wall Street is getting close to the state as Anbound's predicted. Under the trend consensus, we expect that the downward adjustment of the U.S. stocks market will continue further.
Final analysis conclusion:
The accelerated decline in U.S. capital markets on Christmas Eve shows that the U.S. capital markets are more vulnerable, and there is a consensus that global capital markets and the global economy are entering the stage of recession, which may further exacerbate the downward trend of market. The change of market confidence will plunge the capital market into the cold winter, and also make the American capital market stand on the brink again.
