Wall St recovers in volatile trading

UPDATE WED 9am: An hour before the close, the Dow Jones Industrial Average has continued a strong late session recovery. It was up by more than 210 points, or 1.0%, as the session moves between gains and losses.

The broader Standard & Poor's 500 Index is up 0.8% while the Nasdaq Composite is up 1.1%, fulfilling predictions that volatility is back after two years of relative calm.. 

UPDATE WED 8am: Wall Street rebounded, as investors found value following Monday's global stock market rout, amid bets that the outlook remains positive for corporate profits.

In 1.18pm trading in New York, the Dow Jones Industrial Average rose 0.4%, while the Nasdaq Composite Index gained 0.6%. In 1.03pm trading, the Standard & Poor's 500 Index fell 0.2%.

The Dow traded at 24,433.34 in the early afternoon, recovering after sliding as low as 23,778.74 earlier in the day.

"Put your seatbelts on. It's going to be a volatile ride for the next several trading sessions," Chad Morganlander, portfolio manager at Washington Crossing Advisors in Florham Park, New Jersey, told Reuters. "Fundamentals are moving forward in a positive way, which gives us confidence that in the long run you'll continue to see higher highs within the markets."

On Monday the Dow sank more than 1100 points, its biggest drop in more than six years, which Federal Reserve Bank of St Louis president James Bullard on Tuesday called "the most predicted selloff of all time."

"This is the most predicted selloff of all time because the markets have been up so much and they have had so many days in a row without meaningful down days,'' Mr Bullard told reporters after a speech Tuesday in Lexington, Kentucky, Bloomberg reported. "So it is probably not surprising that something that has gone up 40% like the S&P tech sector would at some point have a selloff. Before there was a selloff, people said repeatedly some day this will sell off."

EARLIER: Wall Street's fear gauge-the CBOE Volatility Index or the VIX-dropped 8% to 34.33 after hitting a high of 50.30 earlier in the session and touching a low of 22.42.

Shares of Cboe Global Markets, which owns the intellectual property rights for the VIX, traded 10.4% lower at US$116.92 as of 1.31pm in New York. Earlier in the day the stock slumped as low as $US108.

Credit Suisse Group said it's liquidating a note which uses VIX derivatives that can only be bought and sold on the Chicago-based exchange and have helped fuel its growth, Bloomberg reported.

The Dow gained as advances in shares of DowDuPont and those of Home Depot, recently up 3.2% and 2.4% respectively, outweighed declines in shares of Exxon Mobil and those of Travelers Cos, each recently down 2.6%.

"You continue to have investors re-rating stocks based on higher inflation and higher interest rate expectations," Michael Arone, chief investment strategist at State Street Global Advisors in Boston, told Reuters.

US treasuries dropped, sending yields on the 10-year note up 6 basis points to 2.77%.

Some pointed to the fact that volatility was contained to equities as a sign of optimism.

"The fact that you're not seeing the volatility in the currency market, in the bond market, etc, is very reassuring," Tony Roth, chief investment officer at Wilmington Trust Investment Advisors, told Bloomberg. "Since the credit crisis, the equity market is much more volatile. That's where we seem to be seeing a lot of these institutional hedge-fund, program-trader type of investors playing."

In Europe, the Stoxx 600 Index ended the session with a 2.4% slide from the previous close. Germany's DAX Index dropped 2.3%, France's CAC40 Index shed 2.4%, while the UK's FTSE 100 index fell 2.6%.

UPDATE / Tues 6pm NZT:  The ASX200 opened down 2.8%. In early afternoon trading, the benchmark Australian index was down 3.40% and the All Ordinaries down 3.41%. Both indexes closed down 3.3%.

Asian markets also followed the US down, with the Nikkei losing 4.73%, the Hang Seng 5.12% and Shanghai 3.38%.

Bitcoin also had a bad day. Mid-afternoon, it was down 14% to $US5971. The virtual currency touched $US20,000 earlier this year.

The NZX is closed for Waitangi Day.

UPDATE / Tues 9.30am NZT:  The Dow Jones Industrial Average suffered its largest-ever one-day point drop today.

The benchmark Wall Street index declined 1175 points, or 4.6%, to 24,346, while the S&P 500 fell 4.1% and the Nasdaq Composite 3.8%.

The Dow was briefly down more than 1600 points before recovering ground late in the session — only to jolt downward again in the final half-hour.

The broad-based sell-off comes after the Dow lost 4.2% last week as inflation fears sparked talk that the Federal Reserve may hike rates higher than previously expected, making bonds more attractive than stocks — and more so given many stocks are trading at bubble-like multiples. The S&P and Nasdaq both face their third day of negative returns.

Inflation fears were stoked by a report on Friday that showed the return of wage inflation. Some also see President Donald Trump's $1.5 trillion infrastructure plan (yet to be considered by Congress) as inflationary, while some say his tax cuts risk overheating an already hot economy.

Despite Mr Trump's erstwhile enthusiasm for tweeting stock market developments as a key indicator of economic success, the White House downplayed the severity of the selloff. White House Deputy Press Secretary Raj Shah told reporters “markets do fluctuate” and “the fundamentals of this economy are very strong.”


How the manic Monday unfolded. (Source: Dow Jones)

The NZX is closed today for Waitangi Day. In Monday trading, the benchmark S&P/NZX 50 Index fell 173.46 points, or 2.1%, to 8241.83.

Across the Tasman, ASX futures indicate the market will open at least 2.8% down.

EARLIER / Tues 8am NZT: Wall Street slid as investors reassessed valuations with the potential for interest rates to rise more than they had previously anticipated.

Shortly after 3pm in New York, the Dow Jones Industrial Average sank more than 5 percent, while the Nasdaq Composite Index dropped 1.1%. In 1.14pm trading, the Standard & Poor's 500 Index retreated 1.3%.

US Treasuries edged higher, pushing yields on the 10-year note 1 basis point lower to 2.83%. That's still near the highest level in four years.

"I think what's happening right now can be compared to early 2016 where we saw a pullback that was confidence related rather than fundamental and we saw it reverse fairly quickly," Brad McMillan, chief investment officer for Commonwealth Financial, told Reuters.

"Seeing the 10-year break multi-year highs and the fact that it happened quickly made the market realise there are some real risks out there," according to McMillan.

Some predict a further slide in equities as investors come to grips with the fact that the Federal Reserve may hike rates more than previously expected, but they also say it will pay off to stay the course, Bloomberg reported.

"It's likely the pullback has further to go as investors adjust to more Fed tightening than currently assumed," Shane Oliver, Sydney-based global investment strategist at AMP Capital Investors, which oversees about US$141 billion, told Bloomberg. "The pullback is likely to be just an overdue correction, with say a 10% or so fall, rather than a severe bear market."

The Dow fell as declines in shares of Exxon Mobil and those of Johnson & Johnson, recently down 4.8% and 3.3% respectively, outweighed advances in shares of Intel and those of Apple, recently up 0.9% and 0.4% respectively and the two only two stocks in the Dow to gain in afternoon trading.

Apple might drop Qualcomm in favour of Intel as the supplier of modem chips in its next generation of iPhones, two brokerages said, according to Reuters. Shares of Qualcomm dropped 4% as of 1.21pm.

Meanwhile, shares of Bunge rallied, up 4.1% as of 1.21pm in New York. Archer-Daniels-Midland is in advanced talks to acquire the commodity trader, accelerating the pace of consolidation in the global grain-trading industry, according to people familiar with the matter, Bloomberg reported.

ADM and Bunge, which has a market value of about US$11.5 billion, could reach an agreement as early as this week, the people said, asking not to be identified because the deliberations are private, according to Bloomberg.

The takeover talks are ongoing and could still fall apart, while other bidders could still be interested in acquiring Bunge, the people said, Bloomberg reported.

Shares of ADM, which is scheduled to announce earnings on Tuesday, traded 0.1% stronger recently.

ADM, Bunge and Glencore declined to comment, Bloomberg reported.

In Europe, the Stoxx 600 Index ended the day with a 1.6% drop from the previous close. Germany's DAX Index slid 0.8%, while the UK's FTSE 100 index shed 1.5%, as did France's CAC40 Index.

Tesco, Britain's largest grocer, appointed Booker Group Chief Executive Officer Charles Wilson to lead its UK operations following Tesco's takeover of the wholesaler next month.

Wilson will replace Matt Davies who will step down and leave the group at the end of April, Tesco said in a statement.

"Charles Wilson has an excellent track record at Booker and we expect the appointment to be taken positively by the market," analysts at Bernstein said, according to Reuters.

Shares of Tesco closed 1.7% weaker in London.

(BusinessDesk)


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34 Comments & Questions

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Dow currently down 821 :)

3.5% fall on the day.

Jesus. While writing that Dow down 1077 (4.2%) ... all this year's gains gone.

All that debt in the world ain't gonna disappear, and Trump's huge spend still to be financed. #GreatCollapse is mathematics: if not now, soon.

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Love this sort of market...now we find out who has been swimming without costumes!

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Yes, me too Brent. I think the good folk from CBL have been skinny dipping. A great time for a capital raise to keep afloat after a $100m loss!

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Agree - CBL must be sweating. I would suggest a few others also that may be reliant on capital raising or corporate activity survive.

Only have to look at the PGG Wrightson saga at the start of the GLC.

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Togs / Togs / Undies

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Well pickle me! It was only a few days ago when President Frump was crediting and congratulating himself for the share markets rise. How long before he's telling us that the fall is Hillary's fault?

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And Trumps financial advisor is a Kiwi - Chris Liddell

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Of course it is Hillary's fault.

Her mate Obama was the one who did all the hard work post the GFC to get the US back in shape for the US economy to recover its footing, so it has to be his (and therefore, her) fault.

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Looks like Sean Hannity on Fox news got there first. It was Obama's fault according to Hannity.

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Everything is Obama's fault, according to Inanity Hannity.

And he still has not had the courage to make good on his promise to be waterboarded to demonstrate it's not torture. Christopher Hitchens - a far superior journalist - had the courage to do so, but Hannity was all talk.

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Whitehouse concerned about the drop but are confident in the fundamentals of the economy.
Good enough for me but not for the non speedo wearers.

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Big shifts in sentiment are underway. Interest rates are on the move whether bankers like it or not. People are preparing for the era.

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So many people put prunes on their allbran here it would seem. The DJ is still up this year and vastly up over last 3 months.

Nasty, but not the end of the world.

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When you consider the Dow has increased 20% in 9 months, you then start to realise the sharemarket is a ponzi scheme.

What people (and probably fund managers) dont seem to understand, these increases in share prices only relate to a small volume of the market share. The overall company itself doesnt have a chance of being sold for their current market capitalisation.

I respect fund managers may have a hard job finding investment for the ongoing savings they continue to receive. What is obvious however is the few who can save, dont have enough to invest in.

What is causing a distortion in the system is the current model of charging interest on what was essentially meant to be a medium of exchange (cash|), that relies of exponential growth. On a planet with finite resources, this cant work long term.

The route cause is the unequal distribution of wealth, where those at the bottom barely have enough to exist, yet those at the top have little left to invest in and compete without logic for whats left. Redistributing their wealth would bring those up from the bottom, enabling them to purchase a better quality of goods and services, rather than the throw away junk on offer today; which surely cant be sustainable.

This is going to take some time to play out, with bitcoin currently challenging the banksters rein. Lets hope it sorts itself out before the planet becomes uninhabitable.

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As a socialist, left-wing-conspiracy theorist, you are well known to write some absolute drivel to the comments section of the NBR. But this time, sir, you have outdone even yourself. Congratulations.

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Rather than labeling and throwing shade, which any infant, (or politician) can do, why don't you come up with some intelligent counter arguments to the points he made.

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Mr Smith, I am surprised you read that, let alone comment on it.
Be happy with the share market shakedown/then up. All normal but it certainly has exposed the wannabe financial experts posting here. But their postings should be taken only as amusement.
Now sit back and and wait my friend. They will soon be back squealing when interest rates refuse to rise.

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Don't understand What or even how bitcoin operates,however i don't want to own something that was 18k last week and now under 9k.
Prefer HBL

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(Relatively) small trades, organised by those challenged by bitcoin, is attempting to undermine competition to their own broken twisted system.

And who thought the system of money wasnt privately owned!!

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Hey guys it's a market correction, not the apocalypse.

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You are right, the share market is still higher than it was in October last year, just three months ago when it was at number everybody was happy with!!
But this article and posts certainly does give the reader a clear indication of the economic literacy and integrity NZ gets from its (self appointed) economic experts.. So I suppose a purpose has been served.

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Correct, and hardly a "bloodbath" as per the Herald headline today

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The many hedge funds that were apparently short volatility and the individuals who were long crypto might see things differently.

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Absolutely

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I see soup kitchens a comin' .

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Nope. No recovery. Looks like Dow will end about a 100 points down.

There's more debt in the world than last week. The 10 year US treasury slipped a little yesterday I guess (ludicrously) allaying asylum investor interest fears, but it's moving up again this morning, because, reality.

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Nope. It's going to end about 400 points up.

Farcical.

I guess Fed promising to throw more elderly savers off the greater-good debt mountain so the speculators don't lose their shirts will hold the gates back for another month or two.

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DJI ending up 450 points on the day. Whoops...

You may get a higher interest rate hike track, Mark, but crashes are almost always slow rollovers based on fundamentals souring, not investors freaking out about paying an 25 basis points in a years time.

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Yeah nah. It looks like it's 400 points up with 30 mins of trading left to go. I don't think day-to-day predictions on market direction are very useful to anyone.

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GeoOp should return to $4.40 once the sharemarket bounces back.

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GeoFlop is going to the donut shop regardless.

How those long nights factoring in increased interest rate tracks on your overpriced Otara mansion going, Ted/Robert/Mark?

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30 for 1 consolidation might do the trick......for a few weeks. Otherwise hell will freeze over first.

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Very disappointed in NBR censuring my comments.

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Hi Sally,

NBR does moderate comments if they are libellous, off-topic, abusive or repetitive -- and occasionally we do just make a mistake. The latter could have happened with your comment. If so, apologies and you're welcome to resubmit it.

CK

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