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A Historical Bear Market Is Upon Us

Dec 21, 2018 | Kevin Troy |

A Historical Bear Market Is Upon Us

Thursday, US stocks slid, extending Wednesday’s losses following a Federal Reserve decision and commentary that failed to placate markets. Dropping as much as 679 points on Thursday, the Dow Jones plunged below the 23,000 mark. Meanwhile, the Nasdaq has entered a bear market, and US oil prices are in free fall, closing under $46 a barrel for the first time in over a year.

The future of the current economic expansion has long worried investors, and the latest wave of selling shows just how concerned they are. Investors are particularly worried that the Federal Reserve is making a mistake by continuing to raise interest rates.

The Nasdaq’s closing high was set on August 29, 2018, and Thursday it was on track to close 20% below that. The oil market is worried about surplus supply, which kicked oil into a bear market in November. With its 4.8% drop on Thursday, oil has now fallen 40% in less than two months. On top of that, both the Russell 2000 Small-Cap Index and the Dow Transportation Index (which are both economically sensitive) have entered bear territory.

The financial markets are showing signs of fear. The VIX volatility index jumped to its highest since February, and CNN’s Business Fear & Greed Index (which measures market sentiment) strengthened its position in the Extreme Fear region. Risky stocks such as Tesla and Twitter are imploding, dropping 6% and 11%, respectively.

According to Paul Hickey, co-founder of Bespoke Investment Group, the situation today is almost the complete opposite of 2017 “where any news—good or bad—was met with buying,” whereas “today, any news—bad or good—has been met with selling.”

Wednesday’s Federal Reserve statement and Jerome Powell’s press conference left investors disappointed. Although the Fed turned down its 2019 rate hike projections, it still raised the interest rate.

Meanwhile, according to House Speaker Paul Ryan, President Trump won’t sign the spending bill that is needed to prevent a government shutdown. A shutdown won’t have a significant impact on the overall economy, but it would remind the markets of government dysfunction.

As if all the above wasn’t enough, the sell-off was further accelerated when the U.S. Justice Department on Thursday announced charges against two Chinese nationals alleged to be involved in a global hacking campaign to steal tech company secrets, intellectual property, and personal data of thousands of members of the U.S. Navy. According to the prosecutors, the individuals operated in conjunction with the Chinese Ministry of State Security’s Tianjin State Security Bureau.

As expected, the price of gold has soared today. Please contact us to discuss how you can diversify your portfolio with physical precious metals.