Bear Market Proving to be Consequential for Market Index

This week the market index has met new yearly lows. The worldwide economic instability has led to a dizzying sell-off from 23,970 points straight to 21,846 points. The fall from the all-time high has been of 5,036 points when it was 26,828 points in October this year. The 18.77 percent fall in the Dow Jones is dearly close to the brim of ‘bear market’ status. Dropping just another 1.5 percent (or a drop of 300 points) can officially bring the market Index to the ‘bear market’ soup; as traditionally any fall of 20 percent from an all-time high from the market index or asset’s all-time high, is considered to be a bear market in the traditional financial market.

On the other hand, this week Nasdaq has been found to be in a bear market. The stock exchange saw a new yearly low of 6,332 points on December 23. The Nasdaq Composite showed the 3 percent dip within a time span of mere 6 hours on the day. It had recorded its all-time high of 8,109 points in August this year, and since then its value has plummeted by 22 percent which brought it down to 6,332 points. Amazon and Cisco also saw a daily drop from 6 percent to 3 percent on December 23.

In order to ease the pressure on Dow Jones and the stock market, the U.S. Secretary of the Treasury- Steve Mnuchin interacted with the country’s six major banks’ CEOs. This effort was made to ensure that all the institutions have a lending scope in order to support loans.

Although such efforts are normal under such circumstances, ironically these efforts drew the opposite effect, according to Quincy Krosby, the chief market strategist at Prudential Financial. This effort stirred a sense of uncertainty in the public market investors towards the capability of the government to rescue the stock market to recover. This rendered Muchin’s efforts ‘overreaching’.

“We have gone through situations before where it is absolutely normal for the secretary of Treasury to reach out to the private sector. But what is bad is this made the papers and says the government is very worried. It is almost as if gravity is pulling this market toward a lower level before it bottoms out.” – Quincy Krosby (Chief market strategist at Prudential Financial.)

Two compelling selling reasons press the U.S. stock market. The first reason is the intense trade competition between the U.S. and China. The second reason is that the Federal Reserve wants to continue keeping high rates of interest.

Robin Creswell, the Investment Manager Principal of Payden and Rygel pointed at the pessimistic impact on the U.S. markets, as reported by WSJ. The investors are finding it difficult to make allowances for Federal’s actions. The maintenance of high rates by the Federal is posing a pressing situation for small to medium size businesses in order to secure loans. He said-

“People are struggling to look past the immediate actions of the Fed. For those who can take a longer view and for those who are less focused on their day to day balance sheet needs or their regulatory capital needs, the underlying position is not much changed.”

The President of the country, Donald Trump pointed out that the central bank is the reason for the country’s poor economic performance, on Christmas Eve. Earlier this week both Mick Mulvaney (Chief of staff) and Steve Mnuchin said that the ‘President does not have the authority to relieve Fed Chairman Jerome Powell from his position,’ as reported by CCN.

On the other hand, China is still better managing to keep up with its stock market in comparison to the U.S. In the last six months, the SSE Index (Shanghai) has outshined S&P 500 and the Dow Jones. Although the Chinese stock market has faced a loss of 13 percent; but it is still sailing far from the mark of ‘bear market.’