October 12, 2018

Stocks bounce back: Dow jumps 400 points

Stock market volatility is back in a big way: The Dow kicked off Friday with a big rally after a two-day meltdown.

Dow futures soared 400 points at the open. The Dow lost 1,378 points over Wednesday and Thursday.

The broader S&P 500 was also 1.6% higher. The Nasdaq, which has taken the brunt of the recent stock market turbulence, rose 2.3%.

Why are markets suddenly bouncing back? News late Thursday that President Donald Trump would meet next month with Chinese leader Xi Jinping at the G-20 summit eased some of investors' fears about another trade war escalation. On Friday, China reported its exports rose nearly 15% in September, stronger than expected. That suggests China is weathering the first waves of new tariffs that the Trump administration imposed on $50 billion of Chinese exports this summer

Earnings season also kicked off Friday morning, with JPMorgan (JPM) and Citigroup (C) reporting their quarterly finances before the bell. Wall Street analysts expected the financial sector to post another incredibly profitable quarter --- and JPMorgan managed to beat their already lofty expectations.

In times of market turbulence, there's nothing like soaring profits to calm investors' nerves.

Tech stocks have come under fire because they are some of the riskiest and most expensive parts of the market. Investors fear that tech companies may not hold up well in a downturn, particularly as interest rates spike. A proxy for the tech sector had its sharpest plunge in seven years on Wednesday.

But Big Tech on Friday regained some of its losses.

Asian and European markets also came back Friday. The Hang Seng soared 2.2%. Stocks in Shanghai rose 0.9% and the Nikkei rose 0.5%. Stocks in London, Germany and France all rose about a half percentage point.

Stocks had turned sharply south over the past week because investors are concerned about rising interest rates. As the Federal Reserve raises rates to keep the economy from overheating, investors have been getting out of bonds, driving down their price and driving up their yields. Suddenly, the return on bonds has become competitive with some stocks --- particularly risky tech stocks.

Rising interest rates also increase borrowing costs for households and businesses, eating into corporate profits.

The VIX volatility index touched its highest level since February.

Free E-Newsletters

Sign up now for our daily and weekly
e-newsletters! Click Here

Today's Poll Can CT balance its next two-year budget, projected to have a $4 billion-plus deficit, without raising taxes? <>
Most Popular on Facebook
Copyright 2017 New England Business Media