As the prospects for a trade deal between China and the US fade away, the US stock market falls into depression, losing faith in Santa Claus — the annual Christmas rally that has been pushing the indexes up 12 times over the last 16 years.
After decline by 4.6% last week – the worst week since March – S&P500 index, reflecting the capitalization of the 500 largest US companies, lost another 1.2 % on Monday and marked a new low of 8 months.
By 19.52 Moscow time, Dow Jones lost 1.42% and high-tech Nasdaq – 0.89%. While there are only three weeks left until the end of the year, all key stock indexes went negative compared to the beginning of the year, which threatens the market with the worst annual result since the financial crisis of 2008.
Having believed in the prospect of ending the trade war, the traders faced a discourager after Meng Wanzhou – CFO and a daughter of the co-founder of the Chinese high-tech giant Huawei – was arrested last week in Canada.
In response, the Chinese Foreign Ministry summoned the American ambassador and threatened with “reactions”. At the same time, the Chinese authorities banned Apple to sell all iPhone models except the latest ones in the territory of the country; the Chinese court found that the company had violated two Qualcomm patents – for the photo editing app and the touch screen function.
The market is worried about the expectations that the economic growth will slow down in Europe, the US, and China simultaneously, John Rowe, asset manager at Legal & General Investment Management says: on Monday, the Ministry of Commerce reported a slowdown in the export growth three times – from 15.5% in October to 5.4% in November.
This concern is combined with the vague situation of the trade war and uncertainty as to whether China will manage to accelerate the economy with promoting measures, Rowe adds.
Meanwhile, the effect of tax cuts is gradually being exhausted in the US, and next year the corporate profits, allowing the companies to buy shares from the market and maintain a chronic growth in quotations, could seriously degrade, the strategist of Morgan Stanley Mike Wilson continues.
The shares continue to decline because the market has not yet experienced the final capitulation of hedge funds: their investments in shares remain much higher than the levels observed at other market lows over the past decade, CEO of Sundial Capital Research Jason Gopfert says. “Hedge funds flee stocks, but not fast enough,” says Gopfert. “Their yields still show a steady positive correlation with the S P 500 dynamics, which indicates there has been no significant reduction in their positions, despite the volatility.”