Wall Street suffered another wild ride on Tuesday, with the S&P 500 adding as much as 1.3% and losing as much as 2.1%, before finishing with a gain of 1.7%. This comes after a 6.1% selloff on Friday and Monday. Treasury bonds declined slightly, gold and crude oil both moved lower, and the dollar was mixed.
Breadth was positive, with advancers outpacing decliners by a 2.6-to-1 ratio with six sectors moving higher and five trading lower. Consumer discretionary, materials and technology led the way with gains of 1.3%, 1.4% and 1.2%, respectively. Utilities were the laggards, down 2.2%.
General Motors Company (NYSE:GM) gained 5.8% after reporting better-than-expected earnings. Amazon.com, Inc. (NASDAQ:AMZN) gained 3.8% and was barely impacted by the market chaos. And boy was it chaotic with the Credit Suisse AG – VelocityShares Daily Inverse VIX Short Term ETN (NASDAQ:XIV) imploding after Monday’s 115% rise in the CBOE Volatility Index.
Where do things go from here?
Much depends on whether interest rates and inflation expectations stabilize — which were the original motivations for the market unease that started on Friday. Futures liquidity remains low, however, so watch for more big, “gappy” moves in the overnight futures session.
On a technical basis, stocks are deeply oversold and due for a rebound.
But more headwinds are looming in March as the budget fight is likely to be pushed into that month where the debt ceiling deadline resides. Futures traders also expect the Federal Reserve to raise interest rates again that month.
Offsetting these headwinds are strong fundamentals with U.S. first-quarter GDP growth expected to clock in at more than 5%, the tax cut legislation just beginning to work into the economy, and earnings ready to rise not just on lower tax rates but also higher crude oil prices and widened net interest margins.
My guess: A multiweek reprieve amid a short-covering rally. But then, further weakness in the bond market that will spill over into stocks once more.
Check out Serge Berger’s Trade of the Day for Feb. 7.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
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