Date
28 May 2018
Traders celebrate after the closing bell at the New York Stock Exchange on Tuesday. Photo: Reuters
Traders celebrate after the closing bell at the New York Stock Exchange on Tuesday. Photo: Reuters

Wall Street roars back in volatile session

US stocks posted sharp gains in another wild trading session, as indexes rebounded from the biggest one-day drops for the S&P 500 and the Dow in more than six years that stalled the market’s record run, Reuters reports.

Stocks swung from negative to positive after indexes started the session 2 percent lower, underscoring a return of volatility to a market that until recently was marked by an absence of major shifts, the news agency said.

The Dow had a more than 1,100-point difference between its high and low on Tuesday.

The sharp declines in recent days marked a pullback that had been long awaited by investors after the market minted record high after record high in a relatively calm ascent.

“Despite violent moves in the last couple days in the market, fundamentals in the economy are very strong and it’s not just the US, it’s throughout the global economy,” said Alicia Levine, head of global investment strategy at BNY Mellon Investment Management in New York.

The Dow Jones Industrial Average rose 567.02 points, or 2.33 percent, to 24,912.77, the S&P 500 gained 46.2 points, or 1.74 percent, to close at 2,695.14 and the Nasdaq Composite added 148.36 points, or 2.13 percent, to finish at 7,115.88.

Wall Street is bracing for a higher level of volatility in the days ahead.

The question that vexes traders: Were the wild swings of the past two days the start of a deeper move down or just clearing the way to the resumption of the aging bull market, which would turn nine on March 9?

“Today’s market action is a classic of a market that has searched for a bottom,” said Peter Cardillo, chief market economist at First Standard Financial In New York, who predicted a rebound back to record levels.

Bulls argue that strong US corporate earnings, including a boost from the Trump administration’s tax cuts, will ultimately support market valuations.

Bears, including short sellers that bet on the market decline, say that the market is over-stretched in the context of rising bond yields as central banks withdraw their easy money policies of recent years.

“The markets went into being religiously over-bought to deeply over-sold in a matter of four trading days,” said Adam Sarhan, chief executive of 50 Park Investments, an investment advisory service. “New buyers are showing up, who were waiting for the prices to go down.”

Tuesday’s wild trading session saw the Dow swing more than 1,100 points from its low to its high and ended with the benchmark S&P 500 tallying its best day since just before US President Donald Trump’s November 2016 election.

“I don’t think the volatility is over,” said JJ Kinahan, chief market strategist at TD Ameritrade in Chicago. “These types of moves tend to take about three weeks to get through the system … and volatility just doesn’t suddenly settle down.”

Investors were eyeing the recent steep slide as an opportunity, an extreme example of the “buying the dip” that has symbolized the market’s steady climb to record highs.

“We’ve been looking at this as an opportunity to incrementally add a little bit of risk – not get over our skis, but a little bit,” said Erin Browne, head of asset allocation at UBS Asset Management in New York.

Traders had speculated that Monday’s selling was spurred by automated programs, and had called Monday’s session busy but orderly.

Market experts also attributed the selloff, including the overnight slide in S&P 500 futures, to the violent unwind of a trade betting on volatility in US stocks staying low as the CBOE Volatility index, known as the VIX, notched its biggest one-day jump on Monday in over two years.

US Securities and Exchange Commission chairman Jay Clayton said he “can’t really say” what caused the dramatic drop in stock prices during recent trading sessions, but that all signs indicate financial markets are functioning normally.

US Treasury Secretary Steven Mnuchin said recent volatility was not enough to rock market fundamentals.

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CG

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