Now That’s a Volatile Market: Dow Gains 216 Points, Ninth 200-Point Move This Month

When they said volatility had returned to the stock market, they weren’t kidding.

BRENDAN MCDERMID

The Dow Jones Industrial Average gained 216.58 points, or 1.3%, to 16,577.90 today, the ninth move of 200 points or more in either direction in 17 trading days so far this month. Not only is that more than the seven such days that had occurred previously in 2014, you have to go back to August 2011, when there were 10 such days, to find more (and that took an entire month to accomplish).

The S&P 500, meanwhile, gained 1.2% to 1,950.82, the Nasdaq Composite advanced 1.6% to 4,452.79 and the small-company Russell 2000 finished up 1.8% at 1,116.49.

Why is the market surging? Top-notch earnings from big Dow components like Caterpillar (CAT) and 3M (MMM), and a dividend increase from Visa (V) certainly have helped, as these are some of the priciest stocks in the price-weighted Dow. And then there’s the economic data. US jobless claims rose to 283,000, a tad bit higher than expected but still ridiculously low. Global purchasing managers’ indexes also showed signs of improvement, especially in Europe. If the recent selloff was a “growth scare,” then perhaps growth isn’t as scary as many investors thought. 

ISI Group’s Dennis DeBusschere, however, worries that the stronger-than-expected growth out of Europe could ultimately be bad news for the markets:

We have been of the opinion that Fed actions are less important today than they have been over the past few years as markets are now priced to a point where we need to see growth not just easy policy. That is not as true for the Eurozone, so these better than expected manufacturing data could be considered negative for risk assets if they further slow the progress of fiscal reforms and monetary stimulus.

Marketfield’s Michael Shaoul and team are pleased with the state of corporate earnings but worry that the market could retest its recent lows:

Although US and other global markets have enjoyed a powerful rally off last week's lows, our assumption is that this corrective phase is yet to full run its course. Indeed our "1997 playbook", which continues to prove to be a useful guide, would suggest that we may still have to endure a number of weeks of messy choppy markets. What has been established over the last two weeks is that key support resides at the 1820 level, with Thursday's "retest low" at 1835 marking another very important level to watch. Similarly the failure to cross 1950 in yesterday's session (the index peaked at 1949.31) marks this as important near term resistance that presumably extends in a range all the way up to the 50-day ma at 1966.7…

We believe it would take "new news" to break last week's support and are therefore relieved that by and large corporate earnings have been strong in the current earnings season and have generally confirmed the strength of domestic US economic data which preceded it. We therefore doubt that the corporate sector will supply a "knockout blow" to the market but we are open to the possibility that events elsewhere may provoke another wave of selling.

And even then, it might prove to be another opportunity to buy.