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381-point Dow surge disappears as bond jitters return

Greed is making a comeback on Wall Street, but markets remain bumpy.The Dow opened Wednesday with a 127-point ...

Posted: Feb. 7, 2018 4:23 AM
Updated: Feb. 7, 2018 10:42 PM

Greed is making a comeback on Wall Street, but markets remain bumpy.

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The Dow opened Wednesday with a 127-point loss, quickly turned positive and eventually notched a 381-point gain. But stocks have retreated after more bad news in the bond market, and the Nasdaq even sank into the red.

Still, the extreme fear that sent stocks plunging a record 1,175 points on Monday seems to have faded.

Tuesday's 567-point leap has given hope to the bulls that the market has begun to find a bottom after extreme selling in recent days.

Despite the recent market slump, analysts believe the fundamental backdrop is solid. Corporate earnings have never been higher, and U.S. and global economic growth has gathered momentum.

"We believe the recent sell-off is a correction rather than the start of a bear market," Pierre Blanchet, head of multi asset strategy at HSBC, wrote in a report on Wednesday.

Wall Street is still nervously watching the bond market, where the trouble started last week.

U.S. stocks pulled back on Wednesday after heavy selling lifted the 10-year Treasury yield back above above 2.8%. The jump came after an auction of 10-year Treasury notes drew less than stellar demand.

Investors fear the rapid rise in Treasury yields this year could signal inflation and faster rate hikes from the Federal Reserve. Higher bond yields also make stocks look less attractive by comparison.

"The global bond bubble is leaking air," Peter Boockvar, chief investment officer at Bleakley Advisory Group, wrote in a note to clients after the Treasury auction. He said assets like stocks that are valued off of bonds are "vulnerable too."

Related: Did this little-known investment make the sell-off worse?

Overseas market jitters mostly eased after plunging earlier this week. European markets raced higher, while stocks in Asia were mixed.

The VIX volatility index, which exploded higher on Monday, has cooled off significantly. The VIX fell about 20% on Wednesday.

The question now is whether "this draws a line under the recent stock market correction or whether this is merely a dead cat bounce," currency analysts at ING wrote in a report on Wednesday.

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