December 21, 2018

Stocks try to bounce back at the end of a miserable week

Dow futures pointed to a positive open Friday, as investors hope that stocks can start to recover at the end of an awful week.

The Dow was set to open about 150 points higher, and the S&P 500 and Nasdaq were also up.

Through Thursday, the Dow had lost 1,240 points this week and 2,679 points in December. The S&P 500 was down 10.6% and the Nasdaq had fallen 10.9%. Stocks are on pace for the worst December for stocks since the Great Depression, and the Nasdaq briefly entered a bear market Thursday.

Oil, the Russell 2000, the Dow transports index, and stock markets in China, Italy, Germany, Japan and South Korea are all in bear markets, too.

Investors are worried about the prospect of a global economic slowdown. Political chaos from Brexit, a looming US government shutdown and the resignation of US Defense Secretary James Mattis is stoking fear, too. And the Federal Reserve added to those concerns this week by signaling that its rate-increase plan will continue into 2019 despite downgrading its economic growth forecast.

European markets were mostly lower and Asian markets closed mixed.

Yet light volume and some Christmas cheer brightened investors' outlook Friday, albeit very slightly. The US Commerce Department revised third-quarter GDP up a tenth of a percentage point, so that's some positive news ---- albeit backward-looking.

Investors have some reason for optimism. The S&P 500 is trading at just 14.5 times next year's expected earnings. That's far lower than the historical average of 16 times earnings, suggesting that the sell-off has been overdone. Stocks are cheap, presenting buying opportunities for smart investors willing to take on a bit of risk.

Still, fear is the predominant emotion guiding Wall Street, and a small bit of bad news could be enough to tip the scales once again.

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