US stocks tumble again after day of record-breaking gains

US stock markets fell again on Thursday after a record-breaking day of gains gave way to selling once again.

By lunchtime all the major US markets were in the red, with the Dow Jones Industrial Average down 1.4%, the S&P 500 losing 1.5% and the Nasdaq off 1.9%.

After a series of often wild swings the US stock markets are now on course to end the year in bear market territory – triggered when markets fall 20% from their most recent high. A bear market would be the first in close to a decade.

Michael Antonelli, managing director, institutional sales trading at Robert W Baird in Milwaukee, said he expected more dramatic days aheads. “There’s only two more sessions left before the end of the year. I would expect volatility to reign. It’s dug in like a tick,” he said.

Stocks had fallen for four consecutive days through Monday. Wednesday’s rally – with the Dow adding close to 5% and a record 1,080 points – could have signaled a turning point. Markets closed up in Japan and Australia but European markets sank again on Thursday, with the FTSE closing down 1.5% in London, Germany’s DAX down 2.3% and France’s CAC losing 0.6%

Stock markets have become increasingly volatile in recent months and recorded both record losses and record gains this week. The Dow Jones plummeted 653 points on Monday, capping its worst week in a decade and marking its “worst day of Christmas Eve trading ever”.

The reasons behind the wild swings are manifold and include signs of an economic slowdown in China, Brexit, the US Federal Reserve’s decision to increase interest rates and continuing trade disputes between China and the US.

Alongside the economic news investors are also parsing the likely impact of the policies and rows emanating from Washington. A partial US government shutdown entered its sixth day on Thursday triggered by Donald Trump’s insistence on a new budget that includes $5bn towards his proposed border wall with Mexico. Some 800,000 government employees have been furloughed or are working without pay and as yet no deal to end the stalemate is in sight.

But none of this news is particularly new or unexpected and, said Antonelli, doesn’t fully explain the wild swings investors have been witnessing.

“Everybody has been trying to pin a label on why we have sold off. Basically it’s a crisis in confidence, a crisis in confidence about everything. Where we are in the economic cycle, the [US] administration, Brexit. We keep piling on new crises of confidence and that has crushed the market,” he said.

But he added that stock markets “don’t generally work off news. They work off better or worse: is the situation better or is it worse? Look at Brexit, that got worse.” The same holds true for rising rates and Washington gridlock.

Wednesday’s record-breaking surge was also due more to market mechanics than new news, said Antonelli. Sellers – bears – had been making easy money selling stocks for too long. “Markets like to catch people off guard. Yesterday was all about catching people who were leaning way too bearish,” he said.

The metrics of Wednesday’s rally were “incredible”, he said. All but one name in the S&P 500 list of top US companies was up (the one loser was Newmont Mining, a Colorado gold miner). “We were astonished,” he said.

On Thursday traders seemed to be trying to find a bottom to the market but the process could take some time, he said. “Volatility is like a storm. They don’t end instantly. We have been in this storm since October and it’s going to take time to get out of it.”