Wall St. might be getting its groove back
Rebound by Dow erases half of correction losses
The Dow posted its best weekly gain since the 2016 presidential election, a rebound that follows its biggest downturn in two years and signals recent jitters over inflation have eased.
This past week’s gain of 4.3% for the Dow Jones industrial average comes after a volatile period during which the popular stock gauge suffered its first correction, or 10% drop, since February 2016. The Dow has now recouped about half of its losses suffered in the recent sell-off.
After weeks of worry on Wall Street that signs of rising inflation and a move higher in borrowing costs could impede the stock market’s rise, investment pros now believe gradual increases in consumer prices and worker wages are not enough to offset the benefits of robust economic growth and improving corporate earnings.
“The rebound we’re now seeing reaffirms the belief that the economy is still strong,” said Craig Erlam, senior market analyst at Oanda, a currency trading firm with offices in New York.
On Friday, the Dow rose 19 points, or 0.1%, to close at 25,219.38. It was the sixth consecutive day of gains, its longest streak since early November 2017.
At the height of the sell-off, when the Dow suffered two days of 1,000-point declines, Wall Street pros advised investors to keep the steep downdraft in perspective. They stressed that the price drop was a much-needed pause for a market that had gone up a lot in a very short time. The Dow, after a 25.1% gain last year, rallied nearly 8% more in the first four weeks of 2018 before the correction began.
Bulls also argued that the 10% drop was not due to weakness in the economy and that corrections not accompanied by recessions tended to be shallower and more short-lived than those occurring during economic contractions.
What’s more, they argued that a big chunk of the selling was of a so-called “technical nature,” or forced selling by investors. Those investors thought markets would remain calm, but their bet went bad, causing them to lose money.
Given that the underpinnings of the bull were still in place, many strategists advised investors to use the price drop to buy stocks at cheaper prices. Buythe-dip investors appear to have taken their advice, even though most are aware the days of market calm are over.
“The age of innocence is over on Wall Street,” said Peter Rosenstreich, head of market strategy at Swissquote Bank. “Traders will become more vigilant, but that doesn’t necessarily mean the end of the bull run (it turns 9 on March 9).”
The sell-off was set in motion early this month when the strongest hourly wage gains since 2009 sparked fears of a spike in inflation and caused the yield on the 10-year Treasury note to rise to a four-year high near 3%.