The Dow Jones Industrial Average and S&P 500 Index both rose yesterday, following the previous session’s late surge. Technology shares were among the few laggards, as chipmakers weighed on the Nasdaq 100 Index. Treasuries rose, pinning the 10-year yield below 2.80 percent, while the dollar advanced.
A lingering issue for bulls is the wisdom of doing what they always do – buy the dip – when more selling by speculators may be imminent after Monday’s break in volatility markets. Accounts of losses and liquidations at hedge funds specializing in the asset class were rife Wednesday morning even as Wall Street strategists urged investors to consider the market’s solid underpinning in economic growth and earnings. The Cboe Volatility Index, a measure of market anxiety, dropped 25 percent but remained higher than it was before the recent selloff.
“Even a little bit of volatility is fine as long as we don’t start suddenly taking bigger swings,” said Peter Jankovskis, co-chief investment officer of Oakbrook Investments LLC. “The key thing to me is that the wave is dampening relative to where we were a couple days ago. It obviously takes a while for everybody’s nerves to calm down at once, but we’re moving in the right direction.”
The S&P 500 is coming off its best day in 15 months, as buyers picked over the wreckage from Monday’s 4.1 percent rout. European equities halted a seven-day slide to join the rebound, rising the most in six weeks. Asia’s bid for a recovery faltered late in that session, with the MSCI Asia Pacific Index almost completely erasing a gain of as much as 2.4 percent.
While markets have calmed somewhat, investors are still far more nervous than they were just a few days ago. The VIX index, which is called Wall Street’s “fear gauge” because it measures how much volatility investors expect in the future, is currently at 21, about double where it was two weeks ago. It spiked above 50 early Tuesday.
The current bull market is set to turn nine years old in about a month. As of Jan. 26, the date of the last market record, the S&P 500 had more than quadrupled over that time. The market had made big gains over the last year, and many experts felt stocks were overdue for a slump.
Stocks began to fall Friday after U.S. jobs data showed wages growing more than anticipated. If that continues, it could stoke inflation and prompt the Federal Reserve to raise interest rates more and more quickly than previously expected.
There were few signs investors were avoiding stocks entirely. Bond prices did tick higher. The yield on the 10-year Treasury note fell to 2.79 percent after it surged to 2.81 percent on Tuesday. However, the price of gold has hardly budged the last few days.
The global economy continues to grow strongly and corporate earnings are largely good. Under normal circumstances, that backdrop would see interest rates rise quickly, but in many parts of the world they are still at levels not uncommon to a recession or even a depression. That’s true even in the U.S., where the Fed is gradually raising its rates from historically low levels.
Benchmark U.S. crude added 49 cents to USD63.88 a barrel in New York while Brent crude, the international standard, gained 86 cents, or 1.3 percent, to $67.72 a barrel in London.
The dollar fell to 109.22 yen from 109.33 yen. The euro fell to $1.2340 from $1.2392. MDT/Agencies