Stock Market Recovers Modestly Despite Increasing US-China Trade War Tensions

It’s only Wednesday and “Black Monday,” when all three major Wall Street indices posted their worst percentage drops this year, now seems a vague memory with stocks staging their sharpest turnaround in seven months amidst persistent volatility.

The Dow Jones Industrial Average finished 22.45 points lower (less than 0.1%) to 26,007.07 after falling 2.3% or 589 points at the session low. The S&P 500 called it a day at 2.21 points or 0.1% higher at 2,883.98, after skidding nearly 2%. The tech-heavy NASDAQ Composite Index +0.38% improved by 29.56 points or 0.4% to 7,862.83. This climb reversed an intraday 130-point slide.

Dow Jones Market Data analysts said the stunning turnaround for the Dow and S&P 500 are their largest and most dramatic since Dec. 27, 2018. Wednesday’s volatility was put down to investors’ fears Trump’s intractable trade war against China will continue inflicting more damage on the already fragile global economy. It might also have had something to do with thin summer trading volumes.

Stocks initially sank Wednesday as U.S. Treasury and European government bonds yields fell to new lows but turned positive in the final hour of trading. The 10-year U.S. government bond yield plummeted to almost a three-year low but recovered from its lows of the day.

The 10-year last yielded 1.7122%. As might be expected, gold was a big winner in Wednesday's volatile trading.

On Black Monday, the Dow plummeted 767.27 points, or 2.9%, to close at 25,717.74. It sank by as much as 961.63 points at one point. The S&P 500 plunged nearly 3% to 2,844.74. The NASDAQ spun downwards 3.5% to 7,726.04. The panic on Monday was triggered by China setting the yuan midpoint at a level that suggested a devaluation.

“I don’t think there’s any exact headline or data point that turned the markets around but I think investors are becoming more rational about the economic environment we’re in,” said Lindsey Bell, investment strategist at CFRA, to MarketWatch.

“We have a very strong consumer and things are on a solid footing.”

The traditionally staid month of August when thin trading sets in might also have something to do with the recovery.

“A thinly-traded market can sometimes exacerbate moves, and August trading tends to be light -- it’s typically a sleepy month,” according to J.J. Kinahan, chief market strategist at TD Ameritrade.

Fueling investor anxieties Wednesday was news the central banks of India, New Zealand and Thailand lowered their domestic interest rates to levels lower than expected. These moves underscored investor anxieties about the health of the global economy being weakened by Trump’s incessant use of tariffs to batter other countries.