On Friday, the Dow Jones Industrial Average plummeted from 25,844 to 25,502 by 1.3 percent within a span of hours following the inversion of the Treasury yield curve for the first time since 2007.
Charles Schwab & Co chief fixed-income strategist Kathy Jones told Bloomberg that the U.S. market has priced in the highly anticipated decision of the Federal Reserve to not raise its benchmark interest rate and has begun to be affected by the slowdown in the global economy.
Reports over the weekend have shown that the global economy may be slowing down more rapidly than expected, primarily fueled by the struggle of leading economies in the eurozone.
TOO MANY GEOPOLITICAL RISKS, WHAT WILL IT TAKE FOR THE DOW TO RECOVER?
According to GAM Investments chief economist Larry Hatheway, intensifying geopolitical risks across major regions in the likes of the U.K. and the U.S. are leading to an overall decline in confidence of investors in the global economy including the U.S.
The economist explained that while the U.S. may experience minimal impact from the slowdown of the eurozone and geopolitical risks outside of its ongoing trade discussions with China, he noted that the U.S. is not completely protected from such risks.
Currently, many economists remain relatively confident on the outlook of the economy of the U.S. and the Fed is keenly observing the performance of the U.S. economy, gearing towards a favorable outlook for the U.S. economy in 2019.
The WSJ reported that several strategists and investors such as Evenflow Macro’s Marc Sumerlin expect the Fed to cut its benchmark interest rate if the economy continues to show signs of weakness and risks of a downside movement.
However, if the Fed decreases its rate in the short-term, it could have a major impact on the Dow Jones and the rest of the U.S. market.
DEPENDS ON TRADE DEAL, BREXIT, EUROZONE
There are many factors for the Fed to consider before carrying out discussions on declining the interest rate of the U.S.
If the economy of eurozone worsens in the upcoming months and the U.S. is unable to reach a deal with China by the end of April as forecasted, which may trigger both the economies of China and the U.S. to slowdown, the Fed could react.