US open: No Christmas cheer as stocks sink ahead of the holidays

It was more a case of ho ho horrible than ho ho ho on Christmas Eve, with US stocks firmly in the red once again as worries about the government shutdown weighed on investors’ minds.

At 1625 GMT, the Dow Jones Industrial Average was down 1.8% at 22,036.75, the S&P 500 was off 1.6% at 2,379.15 and the Nasdaq was 0.7% lower at 6,290.03.

CMC Markets analyst Michael Hewson said: "As we look ahead to the scorecard for 2019 and look back at 2018 I think it’s safe to assume that the ‘buy the dip’ mentality that has been so effective over the last ten years may well now be over, given the declines we’ve seen in the last quarter or so.

"The big question is whether the selloff we’ve seen in the last few weeks has further to go or whether we could be near a short term base?

"One of many reasons why investors have got more than a little spooked is down to valuations, the outlook for global growth, as well as concern over the direction of Fed policy, which has seen US yields slide sharply after peaking at multi year highs earlier this year.

"Uncertainty over the future direction of Fed policy has seen US policymakers start to resile from expectations around multiple rate rises next year, though markets still appear to be clinging to the possibility of one rate rise next year.

"Much will depend on how the US/China trade talks and truce play out in the weeks ahead and whether additional tariffs get imposed, but this line of thought of two more hikes has more than an element of wishful thinking about it."

On Friday, US equity markets tumbled amid worries about global economic growth and the temporary US government shutdown. The Dow slumped 1.8% to 22,445.37, the S&P 500 closed down 2.1% at 2,416.62 and the Nasdaq slid 3% to 6,332.99.

The Nasdaq officially entered bear market territory at the end of last week, trading down 22% from its highs at the end of August.

Investors were digesting comments from Trump’s acting chief of staff, Mick Mulvaney, who suggested that the government shutdown that kicked off at midnight on Friday as Trump and the Democrats remained at odds over funding for a border wall with Mexico, could continue right up to the opening of the next Congress on 3 January.

Comments from White House trade adviser Peter Navarro were also in focus after he said the US might not reach a trade deal with China in the next three months unless Beijing can agree to a "profound overhaul" of its trade and industrial practices.

In addition, Treasury Secretary Steve Mnuchin's attempt to assuage investors' concerns backfired, as he held calls with top US bankers over the weekend following the recent selloff in equity markets and made plans to convene a group of officials known as the ‘Plunge Protection Team'.

IG market analyst Chris Beauchamp said: "The reports of Steve Mnuchin meeting with decision-makers will not provide much Christmas cheer. Mr Mnuchin is most likely worried about his job, but everyone else will draw the conclusion that there is perhaps much more to worry about."

Rumours about Trump asking whether he could fire Jerome Powell as chair of the Federal Reserve were also swirling over the weekend.

Oil companies were under the cosh, with Chevron shares down 2.3% and Exxon Mobil down 3.9% as oil prices slid, with West Texas Intermediate down 3% and falling below $45 barrel to $44.28, while Brent crude dropped 2.5% to $52.43.

Stephen Innes, head of trading at Oanda Asia Pacific, said: "Oil prices are reacting negatively to risk sentiment melting quicker than a snowflake in May and taking virtually every growth asset into the tank with it.

"But nothing like a freshly anointed ‘Plunge Protection Team’ to shore up market confidence. Honestly, this would be comic if it wasn't so tragic as the name is ridiculous and depressing the same time, the ultimate markets tragicomedy unfolds. It is getting so bad out here that investors might be in the midst of giving up on the US administration’s policies, voting with their feet and fleeing risk markets en masse."