Dip buying fuels stock rally after two-day selloff
Stocks pushed higher after the biggest back-to-back selloff since October 2020 as dip buyers scooped up some of the hardest-hit shares. Treasuries retreated.
Companies that stand to benefit the most from an economic rebound led gains in the S&P 500, with small caps and travel stocks surging. Trading volume in the gauge was 30% above the average of the past month. Boeing jumped as China was on the cusp of lifting a nearly three-year grounding of the 737 Max plane. Tech underperformed as Bloomberg News reported that Apple Inc. told its component suppliers demand for the iPhone 13 lineup has weakened.
Volatility has gripped financial markets this week, stirred by Federal Reserve Chair Jerome Powell's hawkish tone and the spread of the omicron coronavirus strain. The turmoil may offer investors a chance to position for a trend reversal in reopening and commodity trades, according to JPMorgan Chase & Co. strategists. While it's likely that the variant is more transmissible, early reports suggest it may also be less deadly, they added.
"What we're seeing is the propensity to buy the dip," said Aoifinn Devitt, chief investment officer at Moneta Group. "And why are we buying the dip? Because there's just so much money sitting on the sidelines. Even though these short bouts of volatility are surprising and certainly have sent a chill through markets, we still have a significant bank of equity returns to enjoy year to date."
Traders continued to assess the latest developments on the new coronavirus strain, with a growing chorus of companies and officials seeking to reassure the public about vaccinations. Novavax said it's developing an omicron-specific vaccine construct, while a Pfizer executive expects its shot to hold up against the variant.
Treasury Secretary Janet Yellen said that it's the Fed's job to avert any wage-price spiral, and that she understands the "reasoning" behind the central bank's plans to scale back its asset purchases. Wage and price behavior will be the key signs to watch to detect whether the U.S. economy is "overheating," she added, speaking virtually on Thursday to a conference organized by Reuters.
Bond traders have slashed their inflation expectations, putting the so-called breakeven rate for Treasuries linked to consumer-price gains over the next five years on track for its biggest one-week drop since the early months of the Covid pandemic.
Applications for U.S. state unemployment benefits rose by less than forecast last week, suggesting additional progress in the job market. The figures come a day before the monthly employment report, which is projected to show payrolls increased by 546,000 in November.
The swoon in the S&P 500 in the last two days depressed one measure of its breadth to a level that has coincided with bargain hunting and a recovery in the gauge. The measure is the proportion of stocks trading above the 50-day simple moving average.
Elsewhere, oil whipsawed after OPEC and its allies said they will proceed with their next oil-production hike, but could revisit the decision at any moment as the risk to demand from the omicron variant of Covid-19 becomes clearer.
Stocks:
- The S&P 500 rose 1.7% as of 12:33 p.m. New York time.
- The Nasdaq 100 rose 1.1%.
- The Dow Jones Industrial Average rose 1.9%.
- The MSCI World index rose 0.9%.
- The Russell 2000 Index rose 2.3%.
Currencies:
- The Bloomberg Dollar Spot Index was little changed.
- The euro fell 0.2% to $1.1298.
- The British pound rose 0.2% to $1.3304.
- The Japanese yen fell 0.4% to 113.22 per dollar.
Bonds:
- The yield on 10-year Treasuries advanced six basis points to 1.46%.
- Germany's 10-year yield declined three basis points to -0.37%.
- Britain's 10-year yield declined one basis point to 0.81%.
Commodities:
- West Texas Intermediate crude rose 2.3% to $67.10 a barrel.
- Gold futures fell 1.1% to $1,765 an ounce.
