The day after Christmas was a big present for traders banking on equities built on the foundation of the Dow Jones industrial average, which climbed to the tune of 5% on that market day.
Today, the Dow is sliding back down from $23,000 to $22,500 and as of press time, the market day has really only started.
In an interesting analysis this morning, Emily McCormick at Yahoo Finance details some of the reasons for these index moves.
“Wednesday’s record-breaking advances came amid surging oil prices, positive indicators of retail sales strength for the holiday season and reassurances from the White House that the jobs of both Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin were secure,” writes McCormick. “But with the rally quickly fading, stocks are steering back toward the downtrend they have been following for the past several months. Even with Wednesday’s gains, the S&P 500 is down 7.7% for the year, the Dow is down 7.45% and the Nasdaq is lower by 5.06%.”
McCormick also cites U.S./China trade relations which are on a reset right now.
“Trade talks between the U.S. and China are set to begin the week of January 7 in Beijing, Bloomberg reported, citing unnamed people familiar with the matter,” she writes. “According to the report, Chinese Ministry of Commerce spokesman Gao Feng confirmed that he and U.S. officials will sit down for talks next month but did not specify the date.”
Citing economic “friction” between the two superpowers, McCormick also suggests that fights over telecom companies and allegations of international spying could also shake the U.S./China relationship.
Others cite domestic issues: at MarketWatch, William Watts and Barbara Kollmeyer are considering instability around the U.S. finance cabinet.
“There are some concerns that Wednesday’s big move was overdone,” Watts and Kollmeyeer write, noting the yen’s activity against the dollar. “The Japanese currency is often viewed as a haven for investors in times of economic and market uncertainty. And after jumping from 17-month lows, oil was softer on Thursday, while the yield on the 10-year Treasury Note slipped to 2.759% … and while investors got assurance over Federal Reserve Chairman Jerome Powell’s job on Wednesday, there remains no resolution to other big issues, such a continuing government shutdown as Washington tussles over funding for Trump’s proposed border wall.”
Keep looking at index moves throughout the day as the market positions itself toward the year ahead. Look for opportunities for profit taking, corrections to damaged parts of a portfolio, and new entry points for 2019 “reorganization.”
