S&P 500 Gains Most Since 2011 to Halt 6-Day Rout; Dollar Climbs

  • Treasuries fall after strong data on durable goods orders
  • Volatility remains amid wide swings across global markets

Is It Best to Wait Out Markets Until the Fed Meets?

U.S. stocks rallied the most since 2011, halting a six-day rout as investors found some relief after the worst global equity meltdown in almost four years. Treasuries fell and the dollar rose.

The Standard & Poor’s 500 Index jumped 3.9 percent amid a second day of dramatic swings in share markets, succeeding where a rally yesterday failed in the final hours of trading. Two things that have supported U.S. stocks in the past, dovish words from the Federal Reserve and improved economic data, halted a plunge that erased $2.2 trillion from equity values.  

“It’s definitely a positive to see markets move higher,” said Tom Manning,
chief investment officer from Boston Private Wealth, which oversees about $9
billion in assets. “I don’t know that we found the bottom. I’m not convinced we don’t have more negative days to follow. We’re not likely to go from extreme volatility to extreme calm overnight.”

Volatility could be seen throughout financial markets. Commodities resumed their decline following a reprieve Tuesday. Gold fell for a third day, the longest stretch in a month, while copper led industrial metals lower and U.S. crude oil traded below $40 a barrel.

Earlier attempts elsewhere to push equities higher fell short across the globe. The Shanghai Composite Index ended down 1.3 percent despite an early 4.3 percent surge. European stocks were also whipsawed, erasing a 2.7 percent decline only to slump again.

“We’ll have more volatility until we get more visibility,” said Jacques Porta, who helps oversee the equivalent of $570 million as a fund manager at Ofi Gestion Privee in Paris. “The Chinese devaluation worried investors and the economic data has struggled. The potential rate increase in the U.S. also gives worry that worldwide economic growth will slow.”

Concern that Chinese policy makers may fail to prevent a hard landing in the world’s second-largest economy has convulsed global markets. About $8 trillion has been erased from the value of stocks worldwide since China’s surprise devaluation of the yuan on Aug. 11, with prospects of the first interest-rate increase in the U.S. in almost a decade also injecting an element of uncertainty.

More Volatility

The S&P 500 rose the most since November 2011 in New York, while the Dow Jones Industrial Average jumped 619 points, or 4 percent. Trading was subject the same fluctuations seen in overseas markets. A surge in the first few minutes of trading was more than halved before an afternoon rebound took over. Investors saw a 2.9 percent rally evaporate in the last hour of trading on Tuesday, sending the gauge plunging to a loss of 1.4 percent. 

The selloff in equities ruffled a stock market that had gone almost four years without a 10 percent correction. The S&P 500 plunged 11 percent in the six days through Tuesday, the most since the U.S. was stripped of its AAA credit rating by S&P in August 2011. It was 1 percent away from erasing its gains since the end of 2013.

Global market turmoil has weakened the case for raising U.S. rates in September, Federal Reserve Bank of New York President William C. Dudley said, cautioning that it’s important not to overreact to short-term developments.

“From my perspective, at this moment, the decision to begin the normalization process at the September FOMC meeting seems less compelling to me than it was a few weeks ago,” Dudley told a news conference Wednesday at the New York Fed.

Apple, Google

Technology companies led the gains Wednesday, with Apple Inc., Google Inc. and Intel Inc. rallying at least 5 percent. Cameron International Corp. soared 41 percent after agreeing to be bought by Schlumberger Ltd. in a $14.8 billion deal.

The Chicago Board Options Exchange Volatility Index slipped 16 percent to 30.32, still double its level of a week ago. The measure of market turbulence known as the VIX declined for a second day after a record six-day jump sent the gauge to its highest point since October 2011.

Treasuries fell, pushing 10-year yields to a one-week high, as a report showed orders for capital goods increased by the most in more than a year in July, a sign corporate spending was finding its footing prior to the market turmoil. Benchmark U.S. 10-year yields rose 10 basis points to 2.18 percent.

The Bloomberg Dollar Spot Index jumped 0.7 percent, advancing for a second day as the currency gained 1.8 percent to $1.1309 per euro, and 1 percent versus the yen. Most emerging-market currencies retreated.

The Stoxx Europe 600 Index lost 1.8 percent after declining as much as 2.7 percent during the session, at one point erasing all those losses before tumbling again. Japanese stocks advanced after missing out on Tuesday’s rally, with the Topix index climbing 3.2 percent from a six-month low.

China Stocks

The Shanghai Composite swung throughout the day, sliding as much as 3.9 percent, then rallying 4.3 percent, before closing down 1.3 percent. Hong Kong’s Hang Seng China Enterprises Index, which tracks Chinese shares listed in the city, also erased earlier gains to fall 0.9 percent.

Chinese equities have lost half their value since mid-June, when margin traders started closing out bullish bets. The government has halted intervention in the equity market this week as policy makers debate the merits of an unprecedented rescue, according to people familiar with the situation.

The MSCI Emerging Markets Index ended Wednesday down 0.2 percent, after rallying 2.2 percent on Tuesday, the most in two years. Equity gauges in India, and Saudi Arabia and South Africa lost more than 1 percent, while South Korea’s Kospi index jumped 2.6 percent, capping the biggest two-day rally since June 2013, as tensions between North and South Korea eased.

The Bloomberg Commodity Index retreated 1.3 percent as copper fell 2.6 percent in London and gold lost 1.2 percent to $1,124.60 an ounce.

West Texas Intermediate oil fell 1.8 percent to $38.60 a barrel, having earlier risen as much as 1.4 percent. Rising U.S. fuel stockpiles and the gyrations in China’s stock market fanned concern that demand may slow while global crude markets remain oversupplied.

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