While you were sleeping: Relief rally on Wall St

Thursday 27th August 2015

Wall Street rose, rebounding from one of its worst slumps ever, as investors found value in beaten-down equities and after New York Fed Bank President William Dudley said a US interest rate increase next month “seems less compelling.”

"From my perspective, at this moment, the decision to begin the normalisation process at the September FOMC meeting seems less compelling to me than it was a few weeks ago," Dudley told a news conference.

"But normalisation could become more compelling by the time of the meeting as we get additional information on how the US economy is performing and more information on international and financial market developments,” according to Dudley.

At about 3.15pm in New York, the Dow Jones Industrial Average gained 3.4 percent, while the Standard & Poor’s 500 Index rose 2.5 percent, and the Nasdaq Composite Index added 2.6 percent. Gains were accelerating in the final hour of trade.

Gains in shares of Merck and those of Exxon Mobil, last up 4.7 and 4.6 percent respectively, led the Dow higher. All 30 stocks in the Dow were up as of about 3.15pm New York time.

“This type of short-term rally shouldn’t be much surprise given recent weakness,” Chad Morganlander, a money manager at Stifel, Nicolaus & Co in Florham Park, New Jersey, told Bloomberg. “Eventually the reality that valuations have come off so much will come into play.”

A gauge of investors’ concerns, the CBOE Volatility Index or VIX, dropped 11 percent to 32.16.

China — the key cause of the six-day stock sell-off around the world — stemmed a slide in its key equity index, at least for now. The Shanghai Composite Index closed with a 1.3 percent drop.

“We're still in a period of searching,” Kurt Brunner, a portfolio manager at Swarthmore Group in Philadelphia, Pennsylvania, told Reuters. “You have more people taking advantage of upside. But we're in for some sloppy trading and I don't think it's over today. I don't think it's a straight shot up."

The latest US economic data provided a positive surprise. A Commerce Department report showed durable goods orders unexpectedly rose in July, increasing 2 percent.

"The economy had a tailwind heading into the recent market rout. That tailwind will help to carry us through the turbulent waters that lie ahead," Diane Swonk, chief economist at Mesirow Financial in Chicago, told Reuters.

In Europe, investors had been less upbeat. The Stoxx 600 Index closed the session with a 1.8 percent slide from the previous close. France’s CAC 40 Index slid 1.4 percent, Germany’s DAX Index fell 1.3 percent, while the UK’s FTSE 100 Index dropped 1.7 percent.

"I think the downtrend is still intact because of the bigger picture of anaemic global economic growth,” Berkeley Futures' associate director Richard Griffiths told Reuters. “Any reasonable rally on the markets will be sold into.”

BusinessDesk.co.nz

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