Dark turns to Light
As weeks turned into months over the last quarter of the year, the United States stock market continued to show severe signs of market instability, since its debut of shakiness in October of 2018. As each day continued to come bearing news of the Dow Industrial declining at the closing bell, it raised awareness to investors not only nationally, but worldwide, as the United States could be leaving its bull market and entering a bear market, due to a punishing fourth quarter finishing with a 550 point loss, erasing this year’s overall gains. Talk has also been in the air of a potential economic recession, for the first time in over ten years. Though the beginning of every year is thought to be a time for growth, it seemed to be the opposite for our financial markets.
Jerome Powell, Chairman of the Federal Reserve, announced the Fed's interest rate policy for the year in the latest policy statement. The Federal Reserve recognized that the economy is not growing at the rate economists anticipated. In response, the Federal Reserve is planning to increase the Fed Funds rate more slowly than initially planned. In response to Powell’s notion easing the fear of investors, the Dow reported news of its first gains in nearly a month. Since announced, the Dow has continued to show signs of growth, specifically a week’s worth.
Previously stated, the S&P 500, Dow Industrial and NasDaq had finally saw the results they needed and slowly but surely saw growth in their recent performances. After Powell's optimistic speech, the S&P 500 received an increase of 11.68 points, or 0.5%. Additionally, the Dow saw a 0.5% increase as well, adding 122.80 points. Though not as high, NasDaq saw an growth of 0.4%, with 28.99 points. Though Powell's speech was not the only reassuring notion directed towards investors, the S&P's gains can be attributed to aircraft manufacturer, Boeing. As Boeing's stock is already one of the markets top performing stocks, their stock price recently increased 2.6% after security analysts raised their outlooks on the company. With Wall Street's top analysts rating Boeing highly for its industry performances, investors became attracted towards its successes, ultimately benefiting the market allowing it to see the gains it needed.
Though different sectored stocks perform at their own rate, investors’ forecasts were off the mark due to different economic policy uncertainty. Following the new year of 2019, the markets brought in continuing sub-par performances through the beginning of January. As Christmas reports and earnings came in, it was not what investors were expecting, as major chain retailers, such as Target, noted sub-par performing sales reports. Kohl’s and Victoria Secret also reported some of the biggest let downs among the market after both retailers had an overall 4% decline in sales. Macy’s 5.61% drop in December holiday sales was the biggest single day decline to be recorded this year. Not only were the holidays responsible for such a decline in stock performances, this news only made the decisions of retail investors pessimistic towards the future of retailing, causing the retail share sector to produce a notable loss. Above all else, many levy Target, a notable mass merchant retailer, as a major cause for concern, as the company’s stock fell over 10.5% due to a severely weak earnings report for a prior quarter. This drop was responsible for putting the S&P Retail ETF (XRT) down 3.4%, which was reliant upon the holiday season to bring more retail consumption. As it is still only January, time can only predict the future for these retailers as they try and bounce back financially.
Holiday earning reports are not the only thing contributing to the negative performances of the markets. Tech giant Apple is still continuing to produce unsatisfactory market performance as weak economic performances alongside sales warnings from Apple themselves, spark a rush of fearfulness amongst its shareholders. By lowering its quarterly revenue forecast for the first time in over a decade, Apple erased over 74 billion dollars of market value, falling a whopping 10%. In a domino effect, it caused other tech stocks to slump as well, bringing down the market overall. Some have reason to believe it is the lower than expected demand for the newly released iPhones. Though the stock market is about managing risk vs. return over time, it is difficult to conclude what kind of volatility, or return you will be dealing with. However, many investors believe this period’s volatility hinges on the Federal Reserve's monetary policy and the current Chinese trade issues.
Wursthorn, Michael, and Avantika Chilkoti. “U.S. Stocks Regain Ground Despite Concerns About Global Growth.” The Wall Street Journal, Dow Jones & Company, 10 Jan. 2019, www.wsj.com/articles/global-stocks-drop-as-growth-worries-linger-11547111580.
Horner, Will, and Akane Otani. “Stocks Close Higher as U.S.-China Trade Talks Begin.” The Wall Street Journal, Dow Jones & Company, 7 Jan. 2019, www.wsj.com/articles/u-s-stock-rally-buoys-markets-in-asia-11546838162.
Imbert, Fred, and Spriha Srivastava. “Dow Plunges More than 500 Points, Erases Gain for 2018.” CNBC, CNBC, 20 Nov. 2018, www.cnbc.com/2018/11/20/stock-market-dow-futures-negative-as-tech-stocks-sink.html.