Already, according to Sam Stovall, the chief investment strategist at CFRA Research, equity markets are approaching a capitulation phase. While there still isn’t enough data to conclusively state that U.S. markets have entered a bear market, analysts generally believe the Dow Jones and Nasdaq are close to reaching bear market levels in the short-term.
"Equity markets are quickly approaching the capitulation phase after having broken below critical support,” Stovall said.
All Eyes on Interest Rate as Stock Market Falls
Analysts have started to question the strength and the ability of the U.S. market to undergo steep sell-offs that could trigger a long-lasting bear market.
The Federal Reserve’s rate hike, which has made it more expensive for businesses to borrow money and fuel the recovery of the economy, is expected to test the robustness of U.S. markets in the upcoming months.
Echoing the sentiment of CFRA Research executive Sam Stovall, Citi chief global equity strategist Robert Buckland said that equity markets are slowing down and that the stock market is in steep decline.
However, Buckland emphasized that he does not believe it is the Fed’s job to alter its interest rate to rescue the U.S. stock market. The Citi executive explained:
Equity markets are starting to think about the likelihood of a slowdown. But, it’s not Powell’s job to make the stock market go up. It’s his job to run monetary policy on a mandate of growth and inflation, and the macroeconomic data is pretty robust.
Buckland further added that investors in the market are throwing a “tantrum” after a cycle of easy money and one of the largest bull markets in recent history.
From January to December of 2017, the Dow Jones increased from 19,762 points to 24,719 points, by over 25 percent on a yearly basis. He suggested that a correction was due following such a large bull run that occurred last year.
“Underlying volatility has moved higher in the last six months. I suspect the market has become addicted to cheap money in this cycle and it’s throwing a tantrum as that’s getting taken away,” noted Buckland.
Road to Recovery
The downtrend of the U.S. stock market has extended to retailers, manufacturers, and virtually every major industry in the country.
While the stock price of tech stocks like Amazon and Apple has fallen by around 30 percent on average, retailers and car manufacturers in the likes of Target, Tiffany, and Ford recorded losses in the range of 30 to 35 percent.
Overseas markets such as Australia, South Korea, and China are also seeing their economies weaken at a fairly rapid rate, with commercial banks struggling in Australia and the unemployment gradually rising in South Korea.
The SSE Composite, which tracks all of the stocks listed on the Shanghai Stock Exchange, has dropped by 28.5 percent since January, directly impacted by the ongoing trade war between the U.S. and China.
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