Here’s Why the Dow May be Heading About 2,000 Points Lower

Look out below.  The Dow Jones just broke below its 50-day moving average, and could easily test its 200-day average at 25,830.  Should that fail to hold, the next line of support doesn’t surface until 24,680 – or about 2,000 points than where we are right now.

While there are hopes that the trade war will cool off, as the U.S. and China meet in just days, signs of a recession are surfacing – scaring many investors away.

ISM Shows Contraction at Less than 50

Just yesterday, the ISM September survey on manufacturing registered came in at 47.8%, down from 49.1% from July.  It’s also the worst on record since June 2019, and shows contraction at less than 50. 

“The disappointing data is only fanning long-standing fears of slowing global growth,” Alec Young, managing director of global markets research at FTSE Russell said, as quoted by MarketWatch. “And with U.S.-China trade expected to produce little in the way of near-term breakthroughs, investors continue to favor counter-cyclical, defensive stocks with high dividend yields as weak data pushes interest rates ever lower.”

It’s a clear sign the trade war has done a good amount of damage.

Private Payrolls Shows the Pace of Hiring is Slowing

The private sector did create more jobs than expected in September 2019, but the pace of hiring slowed.  Companies hired 135,000 workers in September, which was better than the 125,000 expected by analysts. However, that’s down from the 157,000 posted in August, and is also down from initial reports for an addition of 195,000 workers.

“We are in a very critical place, kind of a fragile juncture in the economy,” Mark Zandi, chief economist at Moody’s, said as quoted by CNBC. “What happens over the next few weeks, next few months, will determine whether there’s an economic downturn in 2020. Demand for labor is beginning to weaken. Hiring is weakening across the board.” 

In short, markets have plenty to be concerned about at the moment.

However, there may be a pocket of strength near-term if the U.S. and China can resolve their differences in D.C. later this month.