Stock market ETFs continue to be impacted as investors appear to be spooked by changing monetary policy and limited boost from White House economic incentives.
Following a large sell-off in markets earlier in February, which saw the volatility VIX index jump from nine to 37 points, the oldest and largest S&P 500 ETF (SPY) is still in the red year to date, having lost almost $16 billion, and most of it in the past five days.
Many other indexes around the world, including the FTSE 100, the Euro Stoxx 50 and the MSCI World, are all in the red in terms of performance since 1 January. Despite the sell-off, the global ETF industry has broken the $5 trillion mark.
Last week the Dow Jones Industrial Average fell more than a thousand points in a single day – twice. The index has therefore dropped around 12%, swings which are leading experts to compare this fall with the financial crisis of 2008.
Stock market recovering – but starting a slower, longer decline
Although some of the drop is being viewed as a natural correction of record-high stock markets and the VIX has sunk back to a calmer 25 points, analysts say this could be the start of a more prolonged and deeper decline rather than a simple rebalance.
Investors have been spooked by the announcement that the Federal Reserve will hike interest rates this summer instead of autumn, and the market does not appear to have the same confidence in the new chairman, Jerome Powell, compared to previous chairs Janet Yellen and Ben Bernanke.
Despite Donald Trump’s large tax reform bill this year and the two-year budget agreement to increase defence and domestic spending, the markets are not reacting as positively for as long as some experts might have hoped. The tax bill was seen to benefit large corporations and the wealthy rather than the middle class.
Democrats are bad news for stock markets?
A final factor to consider is that with a possible Democratic sweep in November following repeated controversies and scandals from the White House, 2019 could see fewer so-called business friendly policies.
“With the two biggest economic boosters failing to ultimately bolster the stock market, one should expect fits and starts throughout the market, but mostly the beginnings of a market decline in the US and possibly abroad,” wrote Global Risk Insights analysts.