The U.S. stock market halted its death spiral to close higher Tuesday after a wild day of trading that saw the Dow ricocheting more than 1,000 points, underscoring a new regime of volatility on Wall Street.
The turnaround, which follows on the heels of the blue-chip index’s worst one-day point decline on Monday, helped to return key benchmarks back to positive territory for the year.
How did the main benchmarks fare?
The Dow Jones Industrial Average DJIA, +2.33% gained 567.02 points, or 2.3%, to 24,912.77, after falling 567 points at the open. The Dow’s rally was its best daily percentage gain since January 2016.
The S&P 500 index SPX, +1.74% rose 46.20 points, or 1.7%, to 2,695.14 and the Nasdaq Composite Index COMP, +2.13% climbed 148.36 points, or 2.1%, to 7,115.88.
In Monday’s brutal session, the Dow plunged nearly 1,600 pints at its lowest, as investors appeared to panic out of stocks. The index finished down 1,175.21 points, or 4.6%, to 24,345.75, marking its biggest one-day point drop ever. The S&P 500 dropped 113.19 points, or 4.1%, to 2,648.94. Before Monday, it had enjoyed the longest stretch without a 5% pullback in 20 years, but is now down more than 5% from its all-time intraday high of 2,872.87 on Jan. 26.
What drove the markets?
The stock market’s weakness had already begun last week, when data showing a faster-than-expected pickup in inflation sparked fears that the Federal Reserve could embark on a quicker route to interest-rate hikes.
Yields were climbing again Tuesday. The yield on the 10-year Treasury note TMUBMUSD10Y, -0.70% traded at 2.80%, reversing an intraday move that took it to around 2.71% after hitting a peak at 2.88% Monday afternoon in New York. Yields move inversely to price.
Some strategists have been warning for weeks that the seemingly unstoppable rally was due for a pullback. A spike in volatility appeared to push some traders to push the sell button. The Cboe Volatility Index VIX, -19.67% , Wall Street’s so-called fear gauge, surged 116% to 37.32 on Monday, which marked its loftiest level since August 2015, according to FactSet.
What were strategists saying?
Brian Belski, chief investment strategist at BMO Capital Market, urged investors to take things in stride given that corrections are “vital components” of any bull market, and focus on fundamentals rather than being distracted by noise, machines and emotion.
“Rapid selloffs, such as the one today, can also be followed by market bounce-backs as liquidity gets exhausted by programmatic selling. With next year’s P/E (price/earning) on the S&P 500 now below 16, further positive impacts of tax reform and stabilization of bond yields…we think that the ongoing market selloff ultimately presents a buying opportunity,” said Marko Kolanovic, global head of Macro Quantitative and Derivatives Strategy team at J.P. Morgan, in a note to clients.
“Although however tempting it may be to call this the start of the much-needed correction many analysts have been calling for, those looking to short the indexes must be cautious going into tomorrow’s session in case of a bounce,” said James Hughes, chief market analyst at AxiTrader, in a note to clients.
“Frankly, we think it’s healthy to see some of the recent market froth blow off — January’s gains were unsustainable,” wrote Steve Chiavarone, portfolio manager at Federated Investors, in a Tuesday research note titled “It’s a healthy selloff, not a harbinger of something worse.”
What stocks were in focus?
General Motors Inc.’s GM, +5.87% shares gained 5.9% after the auto maker reported fourth-quarter earnings that beat expectations. Ford Motor Co. F, +5.08% shares were also up 5.1%.
Micron Technology Inc. MU, +11.37% soared 11% after the stock was upgraded to overweight from sector weight at KeyBanc Capital.
Cirrus Logic Inc. CRUS, -3.32% shares were off 3.3% on concerns over Apple iPhone weakness.
Allergan PLC AGN, +2.02% shares bounced back from earlier loss to rise 2% after posting results and a positive late-stage clinical trial of its migraine drug.
How did other assets perform?
European stocks SXXP, -2.41% were down across the board. The Nikkei 225 index NIK, +3.06% slid 4.7% as most Asian markets finished in the red. Hong Kong’s Hang Seng Index HSI, +1.29% plunged 5.1%.
Gold futures GCG8, +0.26% settled lower, while oil futures CLH8, +0.79% fell more than 1%. The ICE U.S. Dollar Index DXY, -0.11% was slightly higher.
Bitcoin BTCUSD, -6.28% recouped its earlier losses to trade above $7,000.
