Calm on Wall Street: A Turbulent Week Ends on a Placid Note

29 Aug 2015 | Author: | No comments yet »

Calm on Wall Street: A turbulent week ends on a placid note.

Days after China threw the biggest scare into Wall Street in years, U.S. stocks have come surging back and ended the week Friday on a placid note that suggested the worst may be over for now. Energy stocks, buoyed by a jump in oil prices, led the TSX to close higher Friday, but U.S. stocks were mixed after a two-day rally following comments by a top Federal Reserve official that appeared to suggest that a September rate rise was still possible. The Dow Jones industrial average fell a scant 11.76 points Friday, or 0.1 percent, to 16,643.01, capping a week that saw stomach-churning losses and gains of around 600 points per day.

Before the six-day losing streak had ended, the Dow had plummeted 1,900 points and the S&P 500 was undergoing its first “correction,” a decline of 10 percent or more, in nearly four years. But stocks soared at midweek, cutting the Dow’s losses nearly in half, in a rally analysts attributed to bargain-hunting, signs that the Federal Reserve may hold off raising interest rates this fall, and a new report that said the U.S. economy is growing at a more robust rate than previously believed. Still, the concerns that triggered the sell-off remain: slumping oil prices, a slowing Chinese economy, weak corporate earnings forecasts and uncertainty over interest rates. “For the last few years, let’s face it, there’s been very little volatility,” said JJ Kinahan, TD Ameritrade’s chief strategist. “We’ve had a very impressive rally. Not that we can’t go higher, but it’s not going to be an easy path to get there.” Despite the bounce-back this week, stocks are on course for their worst monthly performance in more than three years.

Because he recently left his job, Chang has to sell investments he bought with stock options within 90 days — something he can’t do now without taking a big loss. Fed vice-chairman Stanley Fischer said the United States was heading in the direction of higher rates and that recent economic data had been impressive. Fischer’s remarks to CNBC added to a general reluctance to take big positions into the weekend after days of tumultuous trading that featured both the market’s worst session in four years and biggest two-day gain since the financial crisis.

Following Fischer’s comments, overnight indexed swap rates implied traders now see a 35 per cent chance the Fed would raise rates in September, up from 22 per cent earlier in the week. The recent market turmoil, that saw the Dow lose more than 1,000 points at one point on Monday, has prompted several strategists to cut their end-of-year forecasts for indexes. Strong gains over the last two days suggested that the worst might be over, but the CBOE Volatility index indicated that the market was still more volatile than usual. In China, stocks jumped more than 4 per cent for the second day as authorities announced that pension funds managed by local governments will start investing 2 trillion yuan ($313-billion) as soon as possible in stocks and other assets.

Data released on Friday showed U.S. consumer spending picked up a bit in July as households bought more automobiles, offering further evidence of strength in the economy. Big Lots was jumped 15.6 per cent to $48.58 after its second-quarter profit beat expectations and the company raised its full-year adjusted profit forecast.

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