Michael Sheetz, John Melloy
Dow Jones Industrial Average futures implied a drop of more than 200 points as of 7:55 a.m. ET Monday. They had earlier fallen shortly after the open of trading. S&P 500 futures and Nasdaq 100 futures also pointed to a weak open.
The Dow lost 1,655 points, or 6.8 percent, last week. That was the Dow’s worst week of trading since October 2008 during the financial crisis. The S&P 500 also lost 7 percent for the week and is now down 17.8 percent from its record reached earlier in the year, putting it on the brink of a bear market. The Nasdaq Composite Index is now 22 percent below its record reached in August and is in a bear market.
Last Wednesday, the Federal Reserve raised its benchmark interest rate for a fourth time this year and Chairman Jerome Powell signaled the central bank would continue to unwind its balance sheet at the current pace. The two monetary tightening actions are driving the stock market declines, traders say.
Treasury Secretary Steven Mnuchin held calls on Sunday with the heads of the six largest U.S. banks in order to reassure nervous investors that the financial markets and economy were functioning properly.
“The banks all confirmed ample liquidity is available for lending to consumer and business markets,” the statement from the Treasury said.
“We continue to see strong economic growth in the U.S. economy with robust activity from consumers and business,” said Mnuchin added in the statement.
Late Friday, there was a report that President Donald Trump was discussing the possibility of firing Powell, a move that could undermine confidence in the U.S. financial system. Other media outlets later confirmed those reports, but Mnuchin sought to from those reports this weekend.
Mnuchin tweeted that he spoke with the president. Mnuchin declared that Trump said he never suggested firing Powell and doesn’t believe he has the right to do so.
Also weighing on investor confidence is a government shutdown, that on through at least Thursday.
Both the Dow and the S&P 500 are now in the red for 2018 by at least 9 percent. Some traders have suggested that the market has gotten to the point where a short-term bounce could occur, if only for technical reasons. Seasonally, this is usually a positive, or at least benign, time for the markets.
The NYSE closes early on Monday at 1 p.m. ET. The exchange is closed on Tuesday for Christmas day. Wednesday through Friday are normal trading days.