The rout that U.S. markets have sustained this week seems to have subsided. Stock prices gained ground in trading today after the worst drop since September.
By Paolo Palazzi-Xirinachs
Thursday, January 14, 2016
In midmorning trading, the S&P 500 rallied to the key 1900 mark as an early selloff in technology stocks fizzled and steadying oil prices boosted energy companies.
All ten major S&P sectors are higher, led by a 3% rise in the energy sector as U.S. crude prices rose more than 3%, and seem set to snap an eight-day losing streak. The other major indices have taken heed. As of noon EST the Dow Jones average was up 1.23% and the Nasdaq composite index also up 0.99%.
The S&P 500, the main U.S. equity index, has declined more than 10% from its record set in May, and is 2% above the bottom of an August swoon, partly triggered by anxiety over the impact of China’s weakness on worldwide growth. The gauge has slumped 8.1% since the Federal Reserve raised interest rates last month for the first time since 2006.
Today’s relatively quiet trading comes a day after the S&P 500 slumped 2.5%, putting it 10% below its peak in November. A drop that big is referred to as a “correction” on Wall Street. The last time the market had one was in August. A correction is normal. After all, investors always want to book profits they have made. A correction becomes a crash when the selling is not particularly linked to anything at all, when it is just motivated by fear. For some market-watchers, the behavior in markets is beginning to look more emotion-based, especially on Wednesday, when the Dow closed 365 points lower with no major announcement or event seemingly precipitating the drop. The market has made multiple attempts at rallies this year, but concerns over China's economy, plunging oil prices and fresh global political concerns have continually stymied investors.
Could the markets be acting on fear that U.S. economic growth is halting? Boston Fed President Eric Rosengren said yesterday that estimates for U.S. growth are falling, putting the central bank’s projected path for rate increases at risk. At the same time Chicago Fed’s Charles Evans said he’s nervous that inflation expectations are lower than policy makers think. The Fed officials may have a case. A report today showed the cost of imported goods excluding fuels declined 3.4% last year, the biggest annual decrease since records began in 2001. Separate data showed applications for unemployment benefits unexpectedly increased last week, a sign labor market momentum may be starting to cool.
In other economic news, shares of JPMorgan Chase rose 1% percent after the bank reported earnings that were better than analysts expected. Other bank stocks have also gained on that touch of optimism. And in Europe, all stock indices reacted to the U.S. markets’ drop by falling hard. The German DAX fell 2.3%, and in France, the CAC 40 lost 2.6%. The FTSE 100 was also down 1.5% percent in Britain.
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