It looks set to be a red Christmas for US markets, which have suffered the brunt of what has been a rough week across the board.
What’s often referred to as the most wonderful time of the year proved otherwise for US markets last week, with the Dow Jones Industrial Average (INDEXDJX:.DJI) seeing its worst weekly performance since October 2008 — or in other words, the Great Recession.
The Dow tumbled 1,655 points or 6.8 percent last week, with the S&P 500 (INDEXSP:.INX) dropping 7 percent. According to CNBC, the NASDAQ Composite (INDEXNASDAQ:.IXIC) is also now 22 percent below the record it reached in August, launching it into a bear market.
The market shakiness comes hot on the heels of the most recent interest rate hike from the US Federal Reserve, which took place last Wednesday (December 19) and saw the target federal funds rate rise from 2.25 percent to 2.5 percent.
The increase was the fourth hike of 2018, and the central bank’s decision has led US President Donald Trump to consider the option of firing Fed Chair Jerome Powell — despite Powell having been nominated for the position by Trump and just sworn in earlier this year.
Whether or not Powell can actually be fired by Trump remains in question — as of Monday (December 24) morning, the president was reportedly reaching out to advisors to determine if he is legally able to do so. The Federal Reserve Act states that a Fed governor can be removed for cause by the president, but no president has tried to fire the central bank’s chair before.
In the meantime, Trump continues to rail at the Fed and Powell on Twitter (NASDAQ:TWTR).
The only problem our economy has is the Fed. 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!
— Donald J. Trump (@realDonaldTrump) December 24, 2018
Alongside last week’s Fed hike woes were murmurs of a partial US government shutdown, which has since gone into effect. The shutdown comes as Trump pushes to receive funding for his proposed US$5-billion border wall between Mexico and the US. Democratic officials have blockaded the idea, instead offering US$1.3 billion for border security.
Monday morning saw investors get increasingly nervous as the Dow slipped a further 400 points and the S&P 500 dropped 1.6 percent, putting the latter on the brink of becoming a bear market, as per CNBC.
As the turmoil ran rampant in the days leading up to Christmas, Treasury Secretary Steven Mnuchin made calls to the CEOs of the six largest banks in the US to touch base on the country’s economic status — a move that has been widely derided by market watchers.
“The banks all confirmed ample liquidity is available for lending to consumer and business markets,” a statement from the treasury department’s official Twitter account reads.
“We continue to see strong economic growth in the U.S. economy with robust activity from consumers and business,” Mnuchin said in the statement.
Amid the downward plunge, gold hit its highest price in six months as investors fled to the yellow metal for safety. It was sitting at $1,268.90 per ounce as of 1:02 p.m. EST on Monday, a level not seen since June of this year. And according to some analysts gold could be further supported by turmoil.
“There is growing confidence on gold in 2019,” ActivTrades Chief Analyst Carlo Alberto De Casa told Reuters. “Gold is expected to play a key role in 2019 as a safe haven given the fears of further falls in stock markets and expectation for a more dovish U.S. Federal Reserve.”
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Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.