Greed is making a comeback on Wall Street. The Dow raced 600 points higher on Wednesday, putting it on track for the biggest point gain since the 2008 financial crisis.
The huge rally comes after six days of dramatic selling that was driven by serious concerns about how China’s slowing economy will impact the rest of the world.
The S&P 500 soared almost 4% on Wednesday, its biggest one-day percentage gain since 2011.
“This is investors being opportunistic and buying on the weakness. Unless you think there’s going to be some massive slowdown in the economy, all of a sudden equities at these levels look attractive again,” said Lori Heinel, chief portfolio strategist at State Street Global Advisors.
There might be bargains to be had given that for the first time in four years all three major U.S. indexes have tumbled into correction mode — signaling a 10% decline from recent highs.
Investors had been wondering whether the big gains would stand — or whether a repeat of Tuesday was in the cards. That’s when a 442-point surge on the Dow turned out to be a big head fake, with the rally turning into a selloff by the end of the day.
The turbulent market moves are further evidence of fears about how China’s economic slowdown will impact the rest of the world.
Global markets turmoil eases
But global markets — other than China — seemed a bit calmer on Wednesday. While the Shanghai Composite retreated another 1.3%, Japan’s stock market soared 3% and European markets held steady after Tuesday’s big gains.
Earlier this week China sought to calm turmoil in global markets by slashing interest rates. The hope is the moves will help stabilize China’s economy and ease fears that the world’s second largest economy is slowing drastically.
Time for a rebound?
Market veterans believe the U.S. stock market is due for a rebound given the scale of losses in recent days. An eye-popping $2.1 trillion of value has been wiped out from the S&P 500 in just the previous six trading days alone, according to S&P Dow Jones Indices. The S&P 500 is on track for its worst monthly decline since 2009 during the end of the global financial crisis.
“Steep declines are unlikely to continue much longer in the very near term given the extremes we’re at right now,” analysts at Bespoke Investment Group wrote in a report on Wednesday.
Tech stocks were at the heart of Wednesday’s rebound. Shares of Netflix, Google and Amazon all rallied sharply. Other big winners include Abercombie & Fitch and Express after both retailers reported profits that exceeded expectations.
U.S. economy looks better than the stock market
The American stock market tumble stands in sharp contrast with sentiment about the U.S. economy.
The economy appears to be on track to continue its expansion from the Great Recession, even though growth may not be stellar.
Further evidence of that was received on Wednesday. The government said orders for big-ticket items like appliances and cars jumped by 2% in July from June. That was significantly more than economists had anticipated.
Crude oil prices struggled to follow the broader markets higher. Oil retreated to about $39 a barrel, leaving it down 17% this month alone.