Coverage: The stock market is back up after opening drop
The Dow Jones industrial average plunged 567 points at the open on Tuesday and briefly sank into correction territory — a drop of 10 percent from its record high — but those losses quickly vanished, and the index ended the day with a mirror-image gain of 567.
Matt Egan of CNNMoney.com had the news:
It was the Dow’s biggest point increase since August 2015 and the fourth-largest in history. The percentage gain of 2.3% is the biggest since January 2016.
The huge swing shows how volatile trading has become in what was once a calm and booming stock market.
“We had an extreme sell-off followed by an extreme bounce,” said Peter Kenny, an independent market strategist and founder of Kenny’s Commentary. “It was a massive reversal: Nearly 1,000 points on the Dow is mind-bending.”
After starting the day sharply lower, the S&P 500 closed with a 1.7% gain, its best since November 2016. Bespoke Investment Group said it was the biggest open-to-close rally since 2011.
The powerful comeback may reflect a realization by investors that the economy is still strong, even if stocks flew too close to the sun earlier this year.
Adam Shell of USA Today reported that investors are not worried about the economy:
Investors have come to the realization that the major cause of the historic plunge was not a weakening economy or struggling corporations or too few jobs in the U.S. But rather, it is the financial fallout caused by a sudden and sharp rise in volatility that caught investors off guard. This bet on low volatility has been one of Wall Street’s most popular trades. But that trade soured Monday when there was a 100% spike in a volatility gauge, known as the VIX, to its highest level since August 2015.
That resulted in big losses for this investment strategy and caused a lot of “forced selling” at some funds, analysts say. One such fund that got trampled by the rise in volatility was Velocity Shares Daily Inverse VIX Short Term ETN, which lost 93% of its value Tuesday. Machine-driven trading via computer algorithms has been cited by many market watchers as making the selling frenzy more violent.
A return of some buyers to the market in search of lower prices after a steep slide, a strategy known as “buying the dip,” stabilized stocks. RBC Capital Markets — citing positives such as a low risk of recession, strong earnings trends and companies returning more cash to shareholders — is one firm putting money back in the market. “For now, we are buyers on the dip,” equity strategist Lori Calvasina, head of U.S. equity strategy at RBC, said in a report.
Jim Zarroli of NPR reported that the market may still have hit a peak:
Despite these large drops, the stock markets have been rising for about nine years now, and many analysts say it’s time to hit the pause button. Just this past year, the Dow has hit new milestones several times. Letting out some of the air might even be healthy, some say.
Even with the recent downturn, the markets are still up considerably since President Trump took office, Kevin Hassett, chairman of the White House Council of Economic Advisers, told CNBC.
“There have been a couple of bad days, [but] if you go back to the day he was elected, we’re up by about a third,” Hassett said.
Treasury Secretary Steven Mnuchin appeared at a previously scheduled hearing on Capitol Hill, where he urged lawmakers to focus on the economy’s strong fundamentals