Wall Street suffers more big losses as threat of US shutdown looms, adding to worries about Fed’s course

  • The Dow was down 2 per cent and the S&P 500 was off by 1.6 per cent
PUBLISHED : Friday, 21 December, 2018, 5:32am
UPDATED : Friday, 21 December, 2018, 5:32am

Volatility gripped US financial markets a day after the Federal Reserve sent shock waves across assets, with the rising threat of a government shutdown adding to a litany of concerns buffeting equities.

The Dow finished Thursday down 1.99 per cent, while the S&P 500 was off 1.58 per cent and the Nasdaq 1.63 per cent.

Equities had whipsawed throughout the day and investors debated whether the Fed and Chairman Jerome Powell set up the central bank for a policy error, before turning sharply lower after US President Donald Trump hardened his demands for cash for his border wall project, in the showdown with Congress over funding the government.

Stocks bounced off their lows in afternoon trading after William Dudley, the former president of the New York Fed, said the central bank would definitely pause rate hikes if the economy starts to weaken.

US shutdown looms again as Trump says he will not sign bill without border wall cash

Earlier the S&P 500 tumbled to a 16-month low. The large-cap measure is down more than 10 per cent in December, on track for its worst month of the record bull run. It has lost about 15 per cent this quarter.

The broader FAANG cohort of shares plunged more than 3 per cent and the group is now 25 per cent below its record.

The S&P 500 has lost about 15 percent this quarter, the most during the record bull run.

“The issue is whether the Fed is providing tough love to the market,” said Donald Selkin, chief market strategist at Newbridge Securities. “He’s saying everything is great, the economy is doing great. But the market, which is forward-looking, is dropping. Something’s not right.”

Currency traders took the Fed’s lowering of expectations for future hikes as a somewhat dovish turn. The weak greenback spurred a rally in developing-nation assets.

Crude added to anxiety on financial markets, with the American benchmark sinking below US$47 a barrel. And a renewed US push against alleged intellectual property theft by Chinese nationals is contributing to uncertainty over the direction of the simmering trade conflict.