Dow Jones Near Bear Market Territory, Why White House Failed to Ease Investors

In the traditional financial market, a 20 percent decline from an all-time high is generally considered a bear market. Having lost 2.91 percent of its valuation on December 24, if the Dow Jones drops by a mere 1.5 percent or 300 points, it will officially be considered to be in a bear market.

Why White House Failed in Relieving Pressure on Dow Jones and Stock Market

On Monday, on Christmas Eve, in an attempt to relieve pressure on the markets, the U.S. Secretary of the Treasury Steve Mnuchin said that he had reached out to the CEOs of the country’s six major banks to reaffirm that all of the institutions have lending capacity to support loans.

However, according to Quincy Krosby, a chief market strategist at Prudential Financial, the efforts of Mnuchin to ease U.S. markets have had a completely opposite effect. Investors in the public market began to demonstrate uncertainty toward the confidence of the government to help the stock market recover, seeing secretary Mnuchin’s initiative to be over-reaching.

Krosby said :

We’ve gone through situations before where it’s absolutely normal for the secretary of Treasury to reach out to the private sector. But what’s bad is this made the papers, and says the government is very worried. It’s almost as if gravity is pulling this market toward a lower level before it bottoms out.

Two major factors are continuing to intensify the sell pressure on U.S. stock markets: the ongoing trade war between the U.S. and China and the Federal Reserve’s intent to maintain its interest rate high.

Payden & Rygel Investment Management principal Robin Creswell told the WSJ that investors are struggling to overlook the Fed’s actions and the inability of small to medium-size businesses to obtain loans at a low-interest rate is posing a negative impact on the short-term trend of U.S. markets.

“People are struggling to look past the immediate actions of the Fed. For those who can take a longer view and for those who are less focused on their day-to-day balance-sheet needs or their regulatory capital needs, the underlying position is not much changed,” Creswell said .

The U.S. President Donald Trump criticized the Federal Reserve once again on December 24, attributing the blame of the economy’s poor performance on the central bank. Both chief of staff Mick Mulvaney and Treasury Secretary Steve Mnuchin said earlier this week that the President does not have the authority to relieve Fed chairman Jerome Powell from his position.

China is Struggling But Not as Bad as the U.S.

Solely based on the performance of their respective stock markets, the Shanghai SSE index has outperformed both the S&P 500 and the Dow Jones in the past six months. At a loss of 13 percent, the Chinese stock market is still far from being at risk of entering a bear market.

However, the Nasdaq Composite has already entered a bear market with a 22 percent loss from its all-time high and the Dow Jones is expected to achieve a bear market status with a fall of less than 300 points.