For the second straight day, the developments of Japan have set the tone for U.S. equities, which have responded to both the huge selloff in Japanese stocks, as well as a continuing influence in the wake of real-time news reports on the progress in solving the crisis.
Those formerly important issues of oil prices and/or the unrest in the Middle East? Those are apparently so last week. The uncertainty of what will happen in the world’s 10th-most populated country is front and center.
As if evidence was needed, one only needed to wake up a few minutes before the open of U.S. trading. Japan’s Nikkei Index had just posted a two-day loss of more than 17% and market futures in this country were pointing toward a decline in the magnitude of more than 2%.
In fact, such a decline was in the early cards, as the Dow Jones Industrial Average fell nearly 300 points out of the gate, and the S&P 500 came to within 5 points of its closing level of 2010. Yes, at one point on Tuesday, stocks were up 0.4% for the year.
From that point, however, events started working more in the bulls’ favor. First and foremost, while the news out of Japan – much of which has defied a definitive version of the current state – was hardly positive, some indications that things were either improving, or not getting worse, was starting to trickle in.
Whether that’s true, investors at least could begin to consider a floor to the damage and recovery costs and timeline, something that was impossible on Monday, when nuclear meltdown seemed a stronger possibility than it did by Tuesday’s close.
And then there was the help from oil prices, which had been declining in recent days, but have rapidly fallen to around $97 a barrel on expected lower demand in Japan. Regardless of the reason, the return of double-digit oil prices has its benefits for the investor worldview.
In addition, it’s worth mentioning Tuesday’s Fed meeting, which ended with an official take that a U.S. economic recovery was on “firmer footing.”
By the end of the session, the Dow had pulled back to close with “only” a 137-point loss to 11,855, the Nasdaq lost 34 points to 2667 and the S&P 500 fell 15 points to 1282.
Utilities took it on the chin for a second straight day. The Dow Jones Utilities Index slid 1.9%. And insurers faced rough sledding. Hartford Financial (NYSE:HIG) fell 4.6%, while AIG (NYSE:AIG) was off 1.9%.
Despite a strong finish, stocks remain subject to the same amount of volatility currently embedded in the fate of Japan’s citizens.