The stock market performance in December has been termed as the worst performance of U.S stocks since the Great Depression in 1930. The dramatic decline in stock exchange has been evidenced by two key stock indexes: Dow Jones Industrial Average and the S&P 500 which closed at 7.6% and 7.8%. The significant decline of the two benchmark U.S. stock indexes has led the Russel 2000 to close in the bear market territory, a phenomenon that has greatly stunned economic analysists as well as worry investors across the country. In early October 2018, the Dow Jones average reached an all-time high of 26, 951.81 but dropped more than 3300 points in less than two months to close at 23, 592.98 on Monday with a high probability of an even worse decline.
In the past, the U.S stocks have always ended the year on a high a situation usually referred to as” Santa rally” but this year looks different attributed to a rapid decline in stock’s price. With close to two weeks remaining to mark the end of December, the situation is most likely to worsen indicated the Russell 2000 which stands at 20.6% from highs. The Russell 2000 is a crucial indicator of the movement of the Dow and S&P 500. A high Russell 2000 value points to a falling Dow and the S&P 500.
Economic analysts have coined the term” bear market” to describe the ailing economic situation. Tobias Luckovich, a chief U.S equity strategist at Citi, predicts an impending economic recession following the end prevailing economic situation experienced in the U.S.
The effects of the decline in stock prices are already being felt in various sectors mainly the banking sector which is literally crumbling. The decline of stock prices has also caused some established companies significantly reduce the prices of their stocks to attract potential investors.
The situation has indeed been costly with an estimated loose of trillions of dollars in hedge funds. Hedge funds liquidations also further decreased the stock prices due to a massive culling from sizable redemptions after liquidation. A reversal in edge funds causes a complete reversal in the market system causing a decline in natural stock buyers resulting in numerous forced sales orders.
The decline in stock prices in addition to a rapidly weakening economy has seen most Americans lose hope in the stock exchange market and the economy in general. This is according to a recent survey which established that 28% of Americans were optimistic about economic improvement, a decrease from 35% at the beginning of the year. 33% of Americans anticipate a worsening economic situation in the coming year in line with several economic analysts who have warned American the brace themselves for harsh economic conditions ahead.
The dramatic decline of stock exchange witnessed in December has widely been linked to the Fed policy which is expected to initiate an increase in interest rates for a fourth consecutive time this year alone. The increase in interest rates has caused ripples among investors who fear that the high-interest rates would harbor US economic growth as well as causing price hikes in the coming years. There is a small chance for the U.S economy to recover with an even greater possibility of worsening in the coming years.