Dow soars more than 1,000 points on short-covering, technicals

December 27, 2018 09:06
A screen displays the Dow Jones Industrial Average after the close of trading in New York on Wednesday, The benchmark index notched its best-ever one-day points gain after getting hammered in recent weeks. Photo: Reuters

US stocks staged a dramatic rebound on Wednesday, with the Dow Jones Industrial Average surging more than 1,000 points for the first time ever, on short-covering activity following reports of strong holiday-season sales in the world's largest economy. 

Technical factors also contributed to the rally, with equities perceived to have been oversold in recent weeks, including in a brutal pre-Christmas selloff.

In a dramatic session that also saw the benchmark S&P 500 come close to dropping into bear market territory, oil prices surged, boosting sentiment for risk assets, Reuters reports.

The Dow Jones Industrial Average closed up 1,086.25 points, or 4.98 percent, at 22,878.45, notching its best single-session points gain in history. 

The previous record point gain for the Dow was 936.42 on Oct. 13, 2008, during a period when markets were whipsawed almost daily by developments in the financial crisis, Reuters noted. 

The S&P 500 index gained 116.6 points, or 4.96 percent, to 2,467.7, while the Nasdaq Composite added 361.44 points, or 5.84 percent, to 6,554.36.

A report that holiday sales were the strongest in years helped mollify concerns about the health of the economy.

US holiday sales this year were up 5.1 percent from a year ago at over US$850 billion, the strongest gain in six years, according to a Mastercard report.

The S&P 500 retailing index jumped 7.4 percent. Shares online retailer Amazon, which touted a “record-breaking” season, climbed 9.4 percent.

“The market is extremely oversold where we left it” on Monday, Brett Ewing, chief market strategist at First Franklin Financial Services, told Reuters.

“You cannot make the assumption that this correction is over, but today’s action is definitely a very positive signal.”

Concerns about the economic growth outlook, the US-China trade dispute and rising interest rates have dogged stocks since the end of summer, and the major indexes are still down more than 10 percent this month alone, with three more trading days left in the year.

The head of the US Federal Reserve faces no risk of losing his job and President Donald Trump is happy with his Treasury secretary, White House economic adviser Kevin Hassett said in an apparent attempt to calm Wall Street nerves.

On Wednesday, short-covering was feverish, with the Thomson Reuters United States Most Shorted Index enjoying its best percentage rise in its six-year history.

“The move you see is just everybody trying to get out of these super, super bearish positions that they have been in, that have been easy to make money in. ... This is a short-covering rally,” said Michael Antonelli, managing director of institutional sales trading at Robert W. Baird.

“These kind of moves, as fun, as exciting as they are, you just don’t see this kind of stuff in healthy, normal markets,” Antonelli told Reuters.

All 11 major S&P 500 sectors ended in positive territory, with the technology sector after being beaten up during the recent pullback, rising 6.1 percent. 

The S&P broke a four-session streak of declines. But despite Wednesday’s surge, it remained on pace for its biggest monthly percentage drop since February 2009, Reuters noted.

"Given the two months we’ve been through, it’s hard to look at one day and say it’s all over,” said Christopher Smart, head of macroeconomic and geopolitical research at Barings.

Even so, Smart said, “If you look at simple valuations in this market, it’s clearly much more attractive than it was over the summer and I think it means that it’s hard to see a lot more downside from here.”

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