— This is the script of CNBC's news report for China's CCTV on December 21, 2018, Friday.
U.S. stocks experienced a volatile decline overnight, among that, DJI lost more than 600 points, closing down 460 points, dropped more than 800 points adding the last trading day loss. S&P500 slide lower than 2500, which is the new record low in 15 months. Actually, if we look at the U.S. stock market over the past December, we can see Dec is usually a gain period, but this year, from the start of Dec till now, S&P500 has eased 10%, so it may record the largest Dec drop since 1931. NASDAQ, which is weighted by tech stocks, also hit a new low in 14 months and a more important reading is NASDAQ jumped 19.5% compared to its high reached in 8 months ago and it is only 0.5% away from the technical bear market. What spook the traders is once the NASDAQ comes into bear market; there will be more downward pressure to sell.
Drop overnight is the 2nd consecutive plummeted days for the 3 stock indexes after the fed released its decision of increasing interest rates. VIX, the fear gauge in the stock market, hit its highest level since the big sell-off in February, reasons behind this fear sentiment is partly from what we mentioned in the last news: the probability of U.S. government shutdown rise and bipartisan struggle adds to the uncertainty over America's future policy, putting pressure on the market. However, analysts also pointed out that even though the government shutdown, it will re-open soon; thus, that may not be the main reason for Thursday's plunge.
And the main reason for the slump is that hiking rates statement which is not dovish enough released on Thursday by the fed. Because the fed didn't let the market feel the fed is sensitive enough to the impact of monetary tightening on the rapid decline in asset prices. And the market fell on concerns that raising rates and tightening monetary, this two-pronged and aggressive tightening policy will bring problems to risk asset and growth next year.
Jack Mcintyre
BRANDYWINE GLOBAL INVEWSTMENT MGMT, Portfolio Manager
The market really stumbled when Powell brought into play the reduction of balance sheet, you know, that is the Autopilot that sort of thing that the market clearly did not like that, so that where the fed gonna makes mistake, they could come with not adjusting the pace of the decline in the balance sheet
And some analysis thinks with stocks now tumbling, traders operate for tax-avoidance in end-of-year first time in years is amplifying market volatility, this operation is tax avoidance with loss. When a year comes to end, investors sell out underperformance stocks to reduce or offset capital gains tax, which is another factor.
Currently, some analysts hold negative views to 2019 perspective, thinking the earnings of US stocks are expected to show negative growth in 2019. And the unclear global trading dispute may further hurt US economy and stock markets. According to a survey conducted by CNBC, the market consensus is S&P gain expected to improve 7.5% in 2019.
And the overnight drop tells us that traders may not have a great break on Christmas and around New Year