Stocks set to start 2019 on a down note

The U.S. stock market is poised to usher in 2019 with a sharp decline as weak Chinese economic data released on Wednesday renewed concerns that a global trade war is weighing on growth.

Dow futures indicate the index will open with a decline of about 400 points. Futures for the S&P 500 and Nasdaq indices are also pointing to lower trading when the opening bell rings at 9:30 a.m. ET.

Those drops come after stocks ended 2018 in the red, a loss not seen since the height of the financial crisis a decade ago. The market gyrations have left investors both poorer and apprehensive about what’s to come, with some analysts questioning whether 2019 could usher in a “bear” market or even another U.S. recession. 

On Wednesday, a government survey and one by a major business magazine showed Chinese manufacturing weakened in December as global and domestic demand cooled. Forecasters said that could send shockwaves through other economies, particularly in Asia, that supply raw materials and components. Chinese export growth has held up as producers rushed to fill orders before possible new U.S. tariff hikes take effect as Washington battles with Beijing over trade. But forecasters said that effect may be fading.

“Global markets have started 2019 off on a quiet but downbeat note,” TD Securities analysts said in a note. “Weaker Chinese data and the ongoing U.S. government shutdown add to a cautious tone.”

U.S.-Chinese talks

Investors are looking ahead to talks this month aimed at settling the U.S.-Chinese dispute that threatens to dampen global economic growth. Presidents Donald Trump and Xi Jinping agreed Dec. 1 to a 90-day suspension of further tariff hikes in their fight over Beijing’s technology policy but left in place penalties already imposed. No date for the new talks has been announced, but both sides have expressed interest in a settlement. 

Economists said the 90-day window is likely too small to resolve the full range of issues that bedevil the two countries’ relations. Mihir Kapadia, CEO of Sun Global Investments, said the uncertainty in financial markets will “continue until further clarity emerges from the U.S. and China talks.”

The Chinese slowdown “raises a few red flags,” said Mizuho Bank’s Vishnu Varathan in a report. The slide is “potentially symptomatic of far sharper underlying demand pullback,” he said.

2018’s wild ride

Last year concluded in an almost polar-opposite mood to 2018’s earlier frothy optimism, when President Donald Trump’s tax cut was projected to boost consumer spending, supercharge corporate profits and burnish investor portfolios. When the Dow jumped 5 percent in January, Mr. Trump touted his policies’ impact on the market and broader U.S. economy.

However, the market started selling off in October amid heightened fears about Mr. Trump’s trade war with China and the Federal Reserve moving to gradually raise interest rates to keep the economy from overheating. The latter led to a series of blistering attacks by the president on Fed Chairman Jerome Powell, whom Mr. Trump accused of roiling markets. 

On top of those worries, investors are also fretting about a slowdown in U.S. and global growth, America’s ongoing government shutdown and even the risk of a possible recession. 

“These issues have given market participants too much uncertainty to shrug off,” John Lynch, chief investment strategist at LPL Financial, wrote in a research note.