Dow dives then rises as Wall Street volatility continues

Blue chip stocks dropped more than 600 points before recovering a day after its first 1000-point gain,
UniCredit Bank chief economist Erik Nielsen says the extreme volatility has been “turbocharged” by surprise policy decisions and programmed trading.

The euphoria that swept Wall Street in its first 1000-point-plus rise in the blue chip Dow Jones Industrial Average was sorely tested in another volatile session.

The Dow dived more than 600 points before recovering in a 850-point swing in the final hour and a half of trading. 

The Dow had tumbled more than 1800 points over the four trading days through to Christmas Eve, only to recoup a massive chunk of that in a post-holiday rally of 1086 points – a record one-day movement.

Volatility has been the norm since October as a pile of worries dogged investors: the US Federal Reserve winding back loose monetary policies, the US-China trade war and slowing global economic growth.

UniCredit Banks chief economist in London, Erik Nielsen, says the extreme volatility has been “turbocharged” by surprise policy decisions out of Washington, as well as programmed trading.

The underlying economic fundamentals are also at play. Stocks are on a downward path “because the US is entering [at least] a cyclical downturn, mostly likely ending in a mild recession in 2020,” Mr Nielsen says.

Wall Street action
At the close of trading, the Dow rose 260.37 points, or 1.1%, to 23,138.82. The S&P 500 gained 0.9% to 2488.83 and the Nasdaq Composite advanced 0.4% to 6579.49.

“So many things have come together that I’d expect the volatility to continue into the new year,” TD Ameritrade chief market strategist JJ Kinahan says.

“There’s still a lot of answers waiting around earnings [growth], tariffs and a sense of where the economy is at.”

Volatility was also a feature of oil trading. Prices fell after recording their biggest one-day increase in two years on Wednesday. .

US crude futures for February delivery settled 3.5% lower at $US44.61 a barrel while Brent, the global benchmark, was down 4.2% at $US52.16, having earlier sunk to $US50.36 earlier in the week, its lowest level since August 2017.

US government-bond prices rose as yields fell on the drop in stocks. The 10-year Treasury note yield was 2.758% from 2.797% on Wednesday.

Washington impasse continues
In political news, the US Senate was expected to convene on Thursday afternoon for the first time since the weekend.

But the Congress and the White House appeared far from reaching a deal to reopen the nine federal agencies that have been closed since Saturday.

President Donald Trump, fresh off a trip to meet troops in Iraq, continued to blame Democrats for the impasse.

“Have the Democrats finally realised that we desperately need Border Security and a Wall on the Southern Border. Need to stop Drugs, Human Trafficking, Gang Members & Criminals from coming into our Country,” he tweeted on Thursday morning.

European sharemarkets fell after returning from a two-day Christmas break. The Stoxx Europe 600 fell 1.7%, Frances CAC 40 lost 0.6%, Germanys DAX dropped 2.4% and the UKs FTSE 100 shed 1.5%..

In Asia, Japan’s Nikkei Stock Average rose 3.9%, Hong Kong’s Hang Seng fell 0.7%  and China’s Shanghai Composite was down 0.6%.

Stocks on the NZX rose with the S&P/NZX 50 gaining 60 points, or 0.7%, to 8774.52 on Thursday, its highest close in two weeks. The ASX200 rose 103 points to 5597.2