Stock markets around the world have staged a post-Christmas rally after shares on Wall Street soared sharply higher after their worst ever performance on Christmas Eve.
Markets braced for turmoil as Trump and Christmas sell-off feed uncertainty
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After wobbling at the open the S&P 500 Index, the DowJones and Nasdaq had all recorded significant gains by the end of Wednesday. The Dow added over 1,080 points (4.9%), its biggest points gain in history, the S&P rose 4.9% and the Nasdaq, which has suffered the most in recent falls, closed 5.8% up.
Asia Pacific markets followed Wall Street’s lead on Thursday with the Nikkei up 3.9% in Tokyo to take it out of the bear market it entered with a 5% drop on Christmas Day. In Sydney, the benchmark ASX200 index closed up 1.9%.
The FTSE100 is expected to open up 1.5% when trading begins in London later on Thursday.
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But analysts said that the fundamental concers of investors about the global economy and trade had not disappeared.
“Investors are aware of negative factors, but they aren’t paying attention to those. They are looking at the Dow’s 1,000 gain,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.
“I think worries regarding the US government shutdown as well as lack of clarity over whether the US-Sino negotiations (over trade) will go well or not still remain.”
The Dow and S&P 500 dropped more than 2.5% on Christmas Eve, their worst ever pre-holidays performance. Worries about rising interest rates, Donald Trump’s attacks on the Federal Reserve for raising those rates, a government shutdown and the continuing trade tensions between the US and China have all rattled investors and the major indices were on the brink of a bear market – a 20% fall from their most recent high.
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US stock markets have enjoyed a record-breaking run, rising steadily since March 2009, the low point of the financial crisis. And the wider economy appears robust with unemployment low and inflation in check. But despite evidence that the US economy remains robust, this year could still mark the first bear market in close to a decade.
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On Monday the Dow was off 18.8% from its October high, while the S&P had fallen 19.8% from its record. The tech-heavy Nasdaq index is already in a bear market, down 23.6% from its August record. The soaring share prices of technology companies – especially the so-called Faang companies, Facebook, Amazon, Apple, Netflix and Google – helped push stock markets to new highs. There recent losses have been a major factor in dragging the markets down.
With just four more trading days to go until the end of the year, investors are expecting a bumpy ride.
Much of the headwinds have come out of Washington. On Christmas Eve Trump tweeted: “The only problem our economy has is the Fed. They don’t have a feel for the Market, they don’t understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders. The Fed is like a powerful golfer who can’t score because he has no touch - he can’t putt!”
The latest attack contributed to Monday’s sell-off and came as economists wrestled with a government shutdown, sparked by Trump’s attempts to fund his border wall with Mexico. That shutdown is now in its fifth day with no signs of a resolution.
Trump has since tried to walk back his criticism of the Fed, telling reporters at the White House on Tuesday that while the Fed was “raising interest rates too fast” he still had confidence in the central bank. “I mean, the fact is that the economy is doing so well that they raised interest rates and that is a form of safety in a way,” he said.
Peter Cardillo, chief market economist at Spartan Capital Securities in New York, told Reuters that he expected markets to continue to rally as investors looked for bargains. But he warned there was probably more volatility ahead. “The ‘bear grip’ is feeding on itself as Trump continues to spread uneasiness,” said Cardillo.
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