MARKETS ROAR BACK AFTER MONDAY MELTDOWN.
U. S. MARKETS BOUNCE BACK AFTER DAY OF HEAVY TRADING AND HUGE SWINGS
NEW YORK• U.S. stocks rebounded Tuesday from the worst day in almost seven years with the best day in 15 months as investors poured back into some of the most beaten- down sectors.
That came at the end of a day of heavy trading and huge swings for the market.
Major indexes in Asia and Europe took steep losses and U.S. markets started sharply lower, only to repeatedly change direction.
After its 1,175-point nosedive Monday, the Dow Jones industrial aver- age lost 567 points right after trading began. After numerous turns higher and lower, it wound up with a gain, coincidentally, of 567.
Despite the turbulence, Tuesday’s trading looked similar to the patterns that have shaped the market for the last year: investors bought companies that do well when economic growth is strongest. Gainers included technology companies, retailers like Amazon and Home Depot, and industrial companies and banks.
In Toronto, the bloodletting of Monday also stopped, but less dramatically, as the S&P/TSX composite index rose 29.12 points, or 0.19 per cent.
The largest percentage gainer was cannabis company Canopy Growth Co, which rose 19 per cent.
What began with rising bond yields became a selloff across global equity markets late last week, as investors feared the return of inflation and higher rates that could erode profitability for companies already trading at elevated valuations.
Traders are watching how the moves unfold — a sustained stock slump has the potential to undermine consumer and business sentiment, crimp borrowing and so start to curtail global growth.
“Based on where we stand relative to historic averages, there may be more pain ahead,” David Lebovitz, global market strategist at JPM Asset Management, said in a message.
“However, with economic growth solid, profits rising and central banks only normalizing policy at a gradual pace, it seems reasonable to expect that we will look back on this a few months from now and not even remember what the initial plunge felt like.”
In Canada, analysts advised investors to remember that context is everything.
“The media sometimes fan the flames of an episode like this. Yes, this may have been the worst point decline in the history of the Dow, which was down as much at 1,600 points on Monday, but that’s only because it reached an all- time high value this year,” said Jason Heath, a financial planner with Objective Financial Partners in Toronto.
In percentage terms, Monday’s decline doesn’t even make the list of the top 20 worst in history, with the worst being “Black Friday” or October 19, 1987 — when the market dropped 22.61 per cent or 508 points.
What happens next is anyone’s guess, so investors should prepare to strap in for a bumpy ride.
“The only thing we know for certain is that stocks will go up or down from here. And over a short period of time, it’s tough for anyone to know what’s going to happen. Over the medium term, stocks will probably be up. And over the long term, they will definitely be up,” said Heath.
Personal finance experts such as Heath say episodes like this reinforce two things: the benefits of diversification and the importance of determining your risk tolerance.
“Diversification helps ensure everything doesn’t move in the same direction at the same time,” Heath said.
And if Monday’s correction of less than five per cent caused you to consider selling stocks, perhaps you should reconsider whether you have too much stock exposure in the first place, Heath added.