Dow Jones Continues to Drop on Monday and Market Waits for The Fed Meeting This Week

January 26
2:11 AM 2016

Dow Jones Industrial Average and other indexes fell sharply on Monday's trade, continuing weeks of poor performance. Meanwhile investors is waiting for the Federal Reserve Bank's next move, as the policymakers will meet this week.

Monday's trade was closed with Dow Jones Industrial Average (DJIA) down 208.29 points, or 1.295, to 15,885.22. Other indexes also fell more than 1%, the S&P 500 lost 1.56%, to 1,877.08 and the Nasdaq Composite dropped 1.58% to 4,518.49. The plunge was driven by energy shares: S&P energy group tumbled 4.5%, Exxon and Chevron each plummeted more than 3%, and ConocoPhillips was down 9.2%.

Los Angeles-based Wedbush Securities Managing director of equity trading, Michael James told Reuters regarding how oil company shares drove the plunge of stock market on Monday's trade, "Today is all about oil. Better oil markets Thursday and Friday led to better equity markets. A $2 retracement in oil today, it's not surprising to see a retracement in the equity indices."

Investors are waiting for the Fed decision following its interest rate hike in December. The policymakers are scheduled to meet on Tuesday and Wednesday, and markets anxiously wait for the next step the Fed will take.

Wall Street Journal reported that in U.S. business cycles, legitimate investment and financial excess have always co-existed. In the 1970s is the bank loan to less-developed countries, the 1980s is the commercial real estate, the 1990s era is the stocks and bonds issued by technology, media and telecommunications companies, and the recent one in 2008 is the subprime mortgage-backed securities.

After cutting the short-term rates in 2008, the Fed must increased its variety of stimulus to grow the market. However, according to Wall Street Journal, the Fed has even less say in the outcome relative to prior cycles, because it relies so much on broader financial conditions to drive growth. This may enforce the Fed to take a more dovish approach.

"I think this is to be expected as the market tries to discern a pattern from the economic releases as to whether the economy is retaining momentum or at least there's a stabilization in the data," said Quincy Krosby, market strategist at Prudential Financial in an interview with CNBC

Krosby also commented that The Fed should keep a close eye on the economy. Furthermore she said, "What's really important is how (the Fed) views the economy and what they're watching. I think what's going on, too, is a growing sense that central banks can only do so much."

The Fed will meet on Tuesday and Wednesday as stock market is still under pressure by oil price and interest rate. Investors are still waiting for the next step Fed will take to deal with the low-performance of the stock market.

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