STOCKS BOUNCE BACK INTO BULL TERRITORY

After a terrible start to the year, investors are finally undoing some of the damage

The worst start ever for the U. S. stock market doesn’t seem so bad now following a bounce- back rally that has pulled stocks close to 2% of where they began the year.

The stock market has done an 180- degree turn since bottoming out in February, trimming a sizable 10% decline to amore palatable 2.2% year- to- date loss— a powerful change in direction that one Wall Street firm refers to as the “reversal of the reversal.”

Three weeks ago on Feb. 11, investors were scared and the Dow Jones industrial average was in free fall , down nearly 1,800 points for the year when it closed at 15,660.18.

But then the tide turned bullish. That same day, JP Morgan Chase CEO Jamie Dimon delivered a vote of confidence to his bank’s battered shares and the stock market in general when he used his own cash to buy 500,000 shares of stock in the bank he leads. The market hasn’t looked back.

Most of the fears, headwinds and worsecase scenarios that weighed on stocks earlier in 2016 never materialized, sparking a relief rally of nearly 1,400 points that has catapulted the Dow to its first four- day winning streak of the year, powered it back above 17,000 for the first time since Jan. 6 and positioned it within striking distance of break- even for the year.

So what sparked the stock market turnaround?

A spate of fresh headlines and economic data points that debunked the notion — at least for now — that the financial world was heading for another monumental fall on par with the 2008 financial crisis or 2000 Internet stock meltdown. It’s not as if all that ails the stock market has been cured, but more about investors downsizing the odds of apocalyptic outcomes.

“The rally has been more about the fading of negatives rather than the emergence of positives,” says Bob Doll, chief equity strategist at Nuveen Asset Management.

The early- year stock market swoon, Doll

says, was caused by “unfounded concerns about a U. S. recession, unfounded concerns about deflation and bad energy loans, overly negative views on China’s economy and fears the Federal Reserve would raise rates five times.”

But none of those major fears materialized, Doll says.

Job gains in February came in stronger than expected, adding to good economic news earlier in the week, including robust auto sales and solid readings on both the manufacturing and services segments of the economy. The solid data have eased recession fears.

Couple that with a stabilization in oil prices and no major bad news out of China and you get a market undoing some of the early- year damage. But will the gains stick? Bo Christensen, chief analyst at Danske Invest, sees reason for optimism that the bearish spell has been broken.

“In our view, the reversal is sustainable,” Christensen says.

He cites three reasons for his optimism. First, he believes a healthy banking and financial system will be able to support the U. S. housing market, consumers and strong jobs growth.

Second, he expects China to deliver “moderate” stimulus focused on the country’s ailing construction industry.

Finally, he expects the European Central Bank to announce further monetary easing to boost inflation and protect the economy from downside shocks.

Another plus is that still- sluggish wage growth in the U. S., despite a robust 242,000 new jobs created in the USA in February, is enough to keep the Fed from an aggressive interest- rate hike campaign, and allow them to stick to plans to normalize rates at a “gradual” pace, he adds.

The rally has been more about the fading of negatives rather than the emergence of positives.”

Bob Doll, chief equity strategist, Nuveen Asset Management