Stocks swing back to gains, Dow up 50

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"Corrections are generally temporary price declines interrupting an uptrend in the market or an asset". And 10 of these bear markets occurred in the decade after 1929. Here's what you need to know.

The Dow Jones industrial average tipped 1,032 points into the red, down 4.2 per cent, to close at 23,860 as fears deepened over rising interest rates.

"A correction is a reverse movement, usually negative, of at least 10 per cent in a stock, bond, commodity or index to adjust for an overvaluation". I'll examine the evidence, which is increasingly worrisome, momentarily. Blame it on large numbers.

Few big companies emerged unscathed, with Dow giants Boeing and Caterpillar losing around five percent, around the same range as tech titans Amazon and Facebook. The Dow Jones Industrial Average closed at 24,893.35 for a loss of -19.42 points or -0.08%. "In other words, the stock market tends to trend higher far more often than it's declining".

What's more, the correction happened so quickly. "The Canadian index is probably likely to take longer to rebound than the USA indices will, just given that the risk that NAFTA is going to be abolished seems to be increasing with time rather than decreasing".

A multi-year stock-market boom! Traders speculated that the breaching of technical levels prompted a frenzy of automated selling. "That fear, that unknown, is really what's driving a lot of the anxiety".

But fundamentally, there have been a couple of changes in the outlook in the past two weeks.

President Trump frequently has touted the rising stock market as a sign his economic policies are working. That makes it more expensive for companies to borrow, reduces the present-day value of companies' future cash flows, and makes bonds more competitive with stocks for investors' dollars.

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The new Fed chief Jerome Powell, who succeeded Janet Yellen this month, is expected to continue Yellen's stance of gradual tightening.

The U.S. House of Representatives joined the Senate early on Friday in approving a budget bill that raises military and domestic spending by nearly $300 billion over the next two years. We haven't had inflation, and now we have it and everyone freaks out.

But Coupe said the volatility showed investors were having difficulty deciding between stocks and bonds at the moment.

On Friday, benchmark 10-year notes were last down 2/32 in price to yield 2.855 percent, near where they ended at last Friday. Technical analysts look at the action of the market itself to predict which way it will go. The pair had dipped as low as $1.2313, breaking through last week's low before manging to stabilize around $1.2380 as it awaits fresh stimulus. When investors are clustering in a handful of stocks or a couple of sectors, dangers rise. Again, unemployment and the labor market are very strong.

Martin, of Globalt Investments, said he did not see anything specific moving the market lower Thursday.

Bank of America Merrill Lynch calculates that there have been 25 bear markets in America since the biggest one of them all in 1929 at the start of the Great Depression.

That could be painful for markets that have been propped up by central banks' stimulus for many years. Peak-to-trough declines average 33% over 14 months.

There still are risks because of opposition in the House from conservative Republicans and some Democrats to the two-year budget agreement, which will allow an additional $300 billion in spending for the next two years.

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