Dow roars back, rallies 620 points, in sign of market stabilization
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It's a new day on Wall Street and investors are still desperate for signs of market stability. Adam Shell with America's Markets. Michael Monday
The Dow rebounded in a big way, surging nearly 620 points — its third-best daily point gain ever and best since 2008 — ending a painful six-session losing streak and giving Wall Street the signs of stabilization it craved after its worst rout in four years.
After yesterday's failed rebound briefly dashed hopes of a recovery, investors Wednesday were searching for signs of stock market stability and a lasting market rebound. And they got their wish.
Unlike Tuesday when the Dow let a 442-point gain disappear and finished down 205 points, the Dow rallied sharply into the close.
The Dow closed up 619.07 points, or nearly 4%, to 16,285.51. It was the Dow’s best daily point gain in seven years, and its biggest advance since the volatile days in October 2008 during the early stages of the financial crisis.
“It seems to me that the selling has exhausted itself for now,” says Bob Doll, chief equity strategist at Nuveen Asset Management.
Brian Belski, chief investment strategist at BMO Capital Markets, says the market’s big bounce signals that business fundamentals are more powerful than fear. A strong reading on durable goods orders in July, or sales of big-ticket items like refrigerators and dishwashers, was the latest sign that the U.S. economy remains strong and can withstand the shock from a slowdown in China.
“Fundamentals always defeat fear and emotion,” Belski told USA Today, adding that the fears over China’s slowing economy and the recent price correction were both “normal and overdone.”
Heading into today’s trading session, David Rosenberg, chief economist and strategist at Gluskin Sheff told clients in a morning research note: “It is how we close, not open that matters.”
To say the market needed a strong close would be an understatement.
As of now, if the rally holds, it will mark another historic day on Wall Street, and go a long way towards stabilizing the market after six days of heavy selling.
Says John Higgins, a market strategist at Capital Economics: There are “renewed signs that the market is stabilizing after Tuesday’s ‘false dawn.’ “
Wall Street, of course, was hoping the Dow could hang on to today’s early gains and change the storyline to a market rebound, as opposed to more trouble ahead.
The Dow Jones industrial average kicked off the session up more than 430 points and is enjoying a strong rally into the close, which is the mirror image of yesterday’s price action. The Standard & Poor’s 500 gained 3.9% and pulled itself out of correction territory, after falllng more than 10% for the first time since 2011 during Monday’s selloff. The Nasdaq composite index added 4.2%.
Heading into today's session, the broader U.S. stock market was basically trading where it was at the panic lows hit Monday morning, when the Dow Jones industrial average plunged almost 1,100 points in a matter of minutes.
U.S. stocks are in their first corrective phase (defined as a drop of 10% or more) since 2011. And with the losses piling up, fears of the first bear market since 2009 are on the rise.
After Tuesday’s losses, the Dow was 14.5% off its recent high, the S&P 500 was down 12.4%, the Nasdaq composite was off 13.6% and the small-cap Russell 2000 was down 14.8%.
After such a steep downturn the past few sessions, the “likelihood of a bounce is high in the near-term is high,” Jason Trennert, founder of Strategas Research Partners, told clients in a note. But he added that the market’s “repair process” could take some time and that a “V-shaped” rebound was still not his base case. For the time being, he is advising clients to sell into the initial rally attempts.
Giving the markets a boost early Wednesday was a strong reading on durable goods orders in July, orders for large-ticket items like dishwashers and washing machines. The 2% rise helped boost confidence about the U.S. economy.
Adding to the positlve sentiment were comments from NY Federal Reserve president William Dudley who said the case for the Fed raising interest rates at its September meeeting is “less compelling” because of the recent developments in international markets, including China.
Low rates have been a big driver of higher stock prices the past six years and Wall Street has been wobbly ever since the nation’s central bank hinted at its late-July meeting that they were moving closer to its first hike in nearly a decade.
Following Dudley’s remarks during a Q&A session in New York, futures trading show that the odds of a September rate hike had dipped to 24$ down from 28% earlier in the week and down from close to 50% back in late May.
Overseas, battered world financial markets attempted to reclaim lost territory Wednesday with mixed success.
In Asia, Tokyo's benchmark Nikkei 225 index gained 570.13 points, or 3.20%, closing at 18,376.83. The broader Topix index finished with a 3.23% gain.
While stocks in China ended the volatile trading session lower, the losses were not as dramatic as seen in recent days. Chinese officials took steps to shore up its economy and markets Tuesday by cutting interest rates and taking steps to make it easier for banks to lend money to borrowers.
The Shanghai composite index — now down by over 40% since mid-June — climbed nearly 3% in afternoon trading before closing down 1.3% at 2, 927.29.
In Europe, most of the major regional benchmarks were lower. Germany’s DAX index was 1.3% lower and France’s CAC 40 index dropped 1.3%.
Chinese state media reported Wednesday that employees of Citic Securities Ltd. — one of China's biggest securities firms — and one current and one former employee of its market regulator are under investigation on suspicion of illegal stock trading. Three other brokerages announced they are under investigation for possible violations of rules on confirming the identities of customers.
Chinese regulators on Tuesday slashed interest rates and eased banking requirements, helping to fuel enthusiasm or at least ease anxieties.
“A certain calm has descended on Asian markets today, allowing traders to catch a much-needed breath,” Chris Weston, chief market strategist at IG, said in a market note. But he added, “It still feels as though volatility can break out at any time.”
Earlier, Kazuhiro Takahashi, chief economist for Daiwa Securities in Tokyo, told national broadcaster NHK that world markets are seeing a correction from the boom in China's stock markets, which climbed 60% over the last year.
'"China is just a trigger," Takahashi said. "We will continue to see some fluctuations in the stock markets in the U.S. and Japan but from the viewpoint of the valuations and fundamentals and earnings growth process, I think the Nikkei average will likely recover. Still, we have to see some concerted actions from major countries, especially China on economic policy and more public spending or monetary easing."
The Nikkei index had lost 2,747.77 points — or 13.37% — over the previous five days.
The Dow Jones industrial average — now in a brutal, six-day losing streak — ended down 205 points Tuesday, or 1.3%, to 15,666.44. The Standard & Poor’s 500 index lost 1.4. The tech-stocks-heavy Nasdaq closed Tuesday 0.4% lower.
As an investor it's hard not to panic as stocks continue to plunge. Adam Shell of USA TODAY with five tips on keeping your cool. Michael Monday
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