Stocks Set to have worst December since Great Depression

great depression

Few people remember the last time the stock market hit such lows during December – the month when most are entering a year-end climb generally referred to as a “Santa rally.”

This reference is to the phenomenon of rising stocks during the last month of the year due to investors feeling more festive and optimistic. However, even those on Wall Street agree that both the S&P 500 and Dow are both on track for severe December losses.

In fact, the losses are predicted to be the greatest the US has seen since 1931 during the Great Depression, inciting fears of another recession.

Previous Losses

The last time such a fall was recorded was sixteen years ago when the S&P 500 saw a six percent fall during December 2002. This year, however, the S&P 500 has lost nearly eight percent of its value during this last month of 2018, eclipsing the earlier loss of 2002 by almost two percent. The Dow has also dropped dramatically, more than seven percent since the beginning of December.

Unfortunately, the US stock market’s already wretched year seems ready to end with two major benchmarks US stock indexes continuing to careen toward a historically bad last month.

Instead of stocks rising this December due to the “Santa rally,” the end of 2018 is instead of ending in what analysts can only describe as “Grinch-like.” This occasionally happens when no year rally materializes.

A Bad Start for 2019

Things could even get much worse next year as Morgan Stanley believes there is a fifty percent chance, or even higher, of a recession hitting the US. According to the bank, the US economy could continue slowing more than expected, prompting the year off with a more significant sell-off.

At this point, the US equity strategy team says the market is expecting a slowdown next year due to positioning and sentiment reaching levels not seen since 2016 and the last recession scare.

Markets across the board are lower ahead of a policy meeting scheduled for Wednesday at the Federal Reserve. In addition, European markets are dropping as well, pushed lower during Tuesday-morning trade by worries of the US market’s dropping.

State of Play in Markets

  • As mentioned, European markets are lower. Britain’s FTSE 100 is down more than 0.7% while Germany’s DAX is down 0.35%.
  • China’s benchmark Shanghai Composite index also lost 0.8% after Asian equities endured a tough day as well.
  • Stocks fell more than two percent during Monday’s trading; however, US Futures pointed to a minor rebound on Tuesday. The S&P 500, Dow, and Nasdaq all are set to open between 0.2-0.3% higher.
  • As fears of market oversupply have worked to subdue the commodity, both major oil benchmarks have dropped to lowest in fifteen months. Benchmarks are down by similar margins of about 3.5% although prices per barrel remain trading at different prices.
  • Lastly, Gold didn’t gain or lose, still trading at its opening price.

Cause of Market Weakness

This month much of the US market weakness seen this month can be attributed to worries about the Fed policy’s future path. The Fed, which will meet on Wednesday, is expected to raise interest rates again, making it the fourth hike this year.

Investors fear this may stimulate more hikes in 2019, which could stall the economic growth of the US. Until the Fed confirms its course of action, investors will remain fearful.

If the Fed continues to press forward with plans for raising interest rates, it could end up being too much to handle for the US economy.