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Stocks Bounce Back From Edge of Bear Market Stocks Bounce Back From Edge of Bear Market
(about 2 hours later)
It didn’t take much, just some early reports of a strong holiday season for retailers and reassuring murmurs from Washington and Moscow, to put Wall Street in a brighter frame of mind. Throughout Wall Street’s December meltdown, analysts have been saying that markets were plunging despite plenty of evidence that the United States economy remains strong and corporate profit growth is healthy.
Stocks broke their losing streak on Wednesday, posting their biggest single day of gains since 2009, as sales data showed spending by American consumers remains healthy and Russia signaled that it was willing to help keep oil prices higher. Investors were also reassured by a White House official’s statement that Jerome H. Powell’s job as Federal Reserve chairman was “100 percent” safe. That argument finally found listeners on Wednesday, when early reports of a strong holiday-shopping season helped lift the S&P 500 by nearly 5 percent, its best day since 2009. The Nasdaq added 5.8 percent, and the Dow Jones industrial average rose just under 5 percent. That jump, over 1,086 points, represented the Dow’s best single-session gain ever, although a number of days have eclipsed that in percentage terms.
The S & P 500 index rose 5 percent. The gains brought the index back from the brink of a bear market — a decline of 20 percent from its peak — though 2018 remains on track to be the benchmark’s worst year since the global financial crisis a decade ago. A substantial rise in crude oil prices added to the lighter mood, as did efforts from the White House to ease up on criticism of the Federal Reserve.
The market’s rally was broad. Retail stocks were among the best performers after data from Mastercard showed that sales in the United States this holiday season were 5.1 percent higher than last year, their most robust growth in six years. Kohl’s was among the best-performing stocks in the S & P 500, climbing more than 10 percent. Shares in Amazon, which described the holiday season as “record breaking” without offering details, rose as much as 9 percent. The rebound offered investors a much-needed reprieve from a decline that had picked up speed in December. Stocks had fallen for four consecutive days through Monday, and the drop had pushed the S&P 500 to within just a few points of a bear market — defined as a 20 percent retreat from its high.
Even bank stocks, which have taken the brunt of recent selling as worries grew that the United States economy was weakening, rose significantly. Shares of Wells Fargo were up more than 2 percent and shares of Bank of America up over 4 percent. Still, the S&P 500 is on pace for its worst annual performance since the financial crisis a decade ago and is only back to where it stood on Dec. 20. Plus, the move in prices Wednesday was most likely heightened by lighter-than-average trading volume during a holiday week.
It was a market move that finally made sense, at least to some traders. But to some traders, the move upward finally made sense.
“Fundamentally you’ve got good growth here in the States, you have reasonable growth overseas, you’re going to have record earnings in 2019 and possibly in 2020 as well, you’ve got low inflation,” said Scott Wren, senior global equity strategist at the Wells Fargo Investment Institute. He said the market, before Wednesday’s steep rise, had fallen too far and was ready to post gains as a result of the underlying strength of the American economy. “Fundamentally you’ve got good growth here in the States, you have reasonable growth overseas, you’re going to have record earnings in 2019 and possibly in 2020 as well, you’ve got low inflation,” said Scott Wren, senior global equity strategist at the Wells Fargo Investment Institute. Before Wednesday’s steep rise, the market had fallen too far, Mr. Wren said, and it was ready to climb thanks to the underlying strength of the American economy.
Oil prices, too, were on the move after Russia’s energy minister, Alexander Novak, told a Russian newspaper that the country would benefit from continuing to cooperate with the Organization of the Petroleum Exporting Countries on regulating prices. American crude, the benchmark oil price, rose more than 8 percent. The rally was broad-based. Only one stock in the S&P 500, Newmont Mining, fell.
White House officials continued to try to calm a run of market volatility, insisting again on Wednesday that President Trump had no plans to fire Mr. Powell despite the president’s criticism of the Fed policies. Mr. Trump, who previously sought to hitch his political success to a rising stock market, has blamed the Fed’s interest rate increases for the downturn on Wall Street. Data from Mastercard showed that sales in the United States this holiday season grew at their fastest pace in six years, and investors flocked to the retail sector. Stock in the department store Kohl’s jumped over 10 percent, and shares of Amazon, which called its season “record-breaking” without offering financial details, rose more than 9 percent.
[Read more about how Mr. Trump has become fixated on Mr. Powell and has asked aides whether he has the power to fire him.] Oil prices, too, were on the move after Russia’s energy minister, Alexander Novak, told a Russian newspaper that the country would benefit from continuing to cooperate with the Organization of the Petroleum Exporting Countries on regulating production. American crude, the benchmark for oil prices, rose almost 9 percent to over $46 a barrel, and shares of large energy producers also climbed.
Kevin Hassett, the chairman of the Council of Economic Advisers, told reporters Wednesday morning that Mr. Powell’s job was “100 percent” safe. He echoed remarks by Treasury Secretary Steven Mnuchin and Mick Mulvaney, Mr. Trump’s incoming chief of staff, both of whom spent the weekend trying to persuade investors that the president did not plan to fire Mr. Powell. Those efforts mostly backfired, in part because Mr. Trump continued to criticize his handpicked Fed chairman. After leading Wall Street’s recent slide, technology stocks rebounded as well. Tech investors have had plenty of causes for concern. A slowing global economy could hurt sales, tensions are rising with China on manufacturing of devices, and privacy concerns are bringing the potential for regulation. Apple shares rose 7 percent, while stock in the semiconductor maker Advanced Micro Devices gained 7.5 percent and Facebook added more than 8 percent.
Worries about the White House’s response to the meltdown in the financial markets have dovetailed with other concerns — including weakness in global trade and the economic impact of a potentially long government shutdown — to feed the volatility on Wall Street. Bank stocks, which have taken the brunt of recent selling as worries grew that the United States economy was weakening, rose significantly.
Before trading started on Wednesday, the S & P 500 had fallen 19.7 percent from its peak on Sept. 20. A bear market is defined as a drop of at least 20 percent. The rally doesn’t mean that this year’s precipitous decline in stock prices is over. Signs of economic health that encouraged the buying are doing little to address one of stock investors’ primary concerns. They’re worried that the Federal Reserve’s decision to continue raising interest rates, even if at a slightly slower pace, will hurt the economy and corporate profits. Higher interest rates on bonds or even savings accounts make stock investments less appealing as an alternative.
Despite the rally, some market analysts were sounding notes of caution. A primary concern among stock investors lately has been that rising interest rates could hurt the economy in the future. Higher interest rates on bonds or even savings accounts also make stock investments less appealing. The Fed announced an interest-rate increase last week and said it would continue to withdraw the support it had offered the economy in the wake of the financial crisis.
“The Fed is making a monumental mistake,” said Barry Bannister, the head of institutional equity strategy at the broker Stifel. “They do not realize how long and by how much they’ve tightened already, and until they back off, the market’s going to have a very weak floor under it.” “The Fed is making a monumental mistake,” said Barry Bannister, the head of institutional equity strategy at the broker Stifel. “They do not realize how long and by how much they’ve tightened already, and until they back off the market’s going to have a very weak floor under it.”
Adding to volatility has been the possibility that President Trump would consider firing the central bank’s chairman, Jerome H. Powell, because he disagreed with Fed policy. Mr. Trump, who previously sought to hitch his political success to a rising stock market, has blamed interest-rate increases for the downturn on Wall Street.
White House officials insisted again that the president had no plans to fire Mr. Powell, news that reassured investors.
Kevin Hassett, the chairman of the Council of Economic Advisers, told reporters Wednesday morning that Mr. Powell’s job was “100 percent” safe. He echoed remarks by Treasury Secretary Steven Mnuchin and Mick Mulvaney, Mr. Trump’s incoming chief of staff, both of whom spent the weekend trying to persuade investors that the president did not plan to fire Mr. Powell. Those efforts had mostly backfired, in part because Mr. Trump continued to criticize his handpicked Fed chairman.
It also helped matters on Wednesday that Mr. Trump refrained from offering new criticism of the Fed, a marked difference from the days leading up to the Christmas holiday, when he railed against the central bank on Twitter and vowed to keep the government shut down for an extended period. In fact, for the first trading session in many days, Mr. Trump posted just one tweet: It was about his trip to Iraq.