Wall Street is rebounding from the worst two-day tumble since President Trump’s election.
The Dow climbed more than 100 points on Wednesday, signaling that the sell-off earlier this week may have been a blip instead of the start of a more serious downturn. The Dow’s two-day loss of 2% was its worst since September 2016.
But the bounce also shows how the markets have suddenly become a bit more turbulent. The VIX volatility index has spiked 25% this week to a five-month high. The S&P 500 broke a record streak without consecutive drops of 0.5%.
“It felt like an avalanche because we got accustomed to not seeing drops,” said Andres Garcia-Amaya, CEO of wealth management firm Zoe Financial.
“I welcome some down days to shake out players who assume the market will go up forever,” he said. “It doesn’t.”
It’s hard to blame people for thinking that, though. By notching another month of gains in January, the Dow and S&P 500 are on track to extend their win streaks to 10. That hasn’t happened since 1959.
Wall Street was reminded Wednesday that Corporate America is minting money. Boeing, easily the best Dow stock since the start of 2017, soared 5% after reporting record annual profits. The aerospace giant is optimistic about 2018 thanks to hefty demand for jetliners.
The economic backdrop continues to look positive. ADP said the United States created a better-than-expected 234,000 private-sector jobs in January. That could be a good sign ahead of Friday’s more closely watched government jobs report.
Despite the strong economy, the Federal Reserve decided on Wednesday to keep interest rates steady.
However, the Fed said it will “carefully monitor” inflation, which it expects to “move up this year.” That could set the stage for the Fed to speed up its plans to raise rates. That decision will be left up to Jerome Powell, who is replacing Janet Yellen when she steps down as Fed chair this week.
Wall Street continues to closely monitor the bond market, which has been slumping. The 10-year Treasury yield, which moves opposite the price, climbed to 2.75% on Wednesday for the first time in nearly four years.
Higher bond yields over the past few weeks have unnerved investors, raising concern that the era of extremely low interest rates may soon be over. Significantly higher bond rates would act as a brake on the economy by increasing the cost of borrowing. They would also make risky stocks look less attractive compared with relatively safer bonds offering greater returns than they have been.
Investors may also be relieved at the measured tone Trump struck during the State of the Union address on Tuesday night.
The president cheered the economic gains of the past year and called on Congress to produce a bill that generates at least $1.5 trillion for infrastructure investment.
On the other hand, Wall Street didn’t love Trump’s repeated vow to bring down drug prices. Drug stocks such as Eli Lilly and Merck slumped on Wednesday, while the iShares NASDAQ Biotechnology ETF retreated 1%.
Despite the drama in the market this week, Wall Street has enjoyed a robust start to 2018. The Dow’s 6% jump in January would be its best month since March 2016. The Nasdaq is up 8%, its strongest month since October 2015.