Wall Street bounces back
Strong housing and earnings reports helped US stocks rebound from their worst day of the year.
The Dow Jones industrial average rose 157.58 points, or 1.1%, yesterday to 14,756.78, winning back more than half of the 265 points it lost a day earlier. The Standard & Poor’s 500 index logged its second-best day of the year.
Home construction topped one million last month, the highest level since June 2008. Robust earnings from companies including Coca-Cola also propelled the market higher.
A recovery in housing and a pickup in hiring were major catalysts driving the stock market’s surge early this year. The Dow and the S&P 500 jumped 11.3% and 10.3%, respectively, in the first three months of 2013.
That run-up was interrupted on Monday when stocks had their biggest decline since November.
Worries about an economic slowdown in China led to a drop in prices for oil, copper, and other commodities, causing mining and energy stocks to fall. The rally had already slowed earlier this month after reports of weak hiring and retail sales suggested that the economy was cooling off.
“This is the first time in a while that we’ve had pretty positive numbers,” said JJ Kinahan, chief derivatives strategist for TD Ameritrade.
“We had one bad day yesterday. You can’t say because of that one bad day that all bets are off.”
While Chinese growth fell short of expectations, Monday’s sell-off may have been disproportionate to the slight slowdown.
The world’s second biggest economy still expanded at a rate of 7.7% in the first three months of the year, slowing from 7.9% the previous quarter.
China is watched closely because it is a major market for foreign goods from iron ore to smartphones.
Investors hope demand from China can help offset weakness in the US, Europe and Japan.
Mining companies rose yesterday as commodities markets stabilised and materials stocks gained the most of the 10 industry groups in the S&P 500 after leading the market lower the day before.
The S&P 500 climbed 22.2 points, or 1.4%, to 1,574.57. It was the biggest gain since January 2, when stocks rallied after politicians reached a last-minute deal to stop a series of sweeping tax hikes and spending cuts from taking effect.
Investors should expect a more volatile stock market until there is more confirmation that the economy is strengthening and the outlook for companies is improving, said Jeff Morris, head of US equities at Standard Life Investment.
“Until we get evidence of more robust conditions in the second half we’re going to be in more of a sideways market,” he said.
“You saw a fairly dramatic move yesterday; that’s indicative of a market that’s not quite sure of which direction to go.”
While the Dow is up this month, the pace of gains is slowing and the index is on track to log its weakest month of the year. The Dow has risen 1.2% in the first two weeks of April, compared to an average monthly gain of 3.6% in the first quarter.
