At the end of last year, the market took a sharp drop. On Christmas Eve, the market was down about 19.9% from its recent high in September, barely escaping bear market territory, which is generally regarded as a decline of 20%. The drop was characterized as a “glitch” by President Trump, which prompted me to write my column, “How the Glitch Stole Christmas” for the Daily Journal of Commerce.
The drop was triggered by two events, the first being the trade war with China. Characterized as “easy to win” by President Trump, the war showed signs of extending and having a negative effect on the global economy. Both Europe and China were showing the effects of slowing, as noted by Christine Lagarde, Chairwoman of the International Monetary Fund. China particularly showed the impact, with its GDP slowing to 6.3% from 6.6%, although still far higher than the EU, the US, and Japan. Still, the longer the trade conflict goes on, the greater the danger of additional global economic contraction. While the U.S. continued to have a generally robust economy, that too showed signs of slowing.
Secondly, the Federal Reserve seemed to be abandoning its support for the U.S economy. With Chairman Powell pursuing an autopilot policy of raising rates, the market lost faith in the Fed as overseer of a strong US and, tangentially, world economy. The market plummeted.