(USATODAY) U.S. stocks jumped more than 2% Tuesday as Wall Street rebounded from Monday's 588-point drop in the Dow in a stock market ro...
(USATODAY) U.S. stocks jumped more than 2% Tuesday as Wall Street rebounded from Monday's 588-point drop in the Dow in a stock market rout that sent all the major indexes into official correction territory.
Investors were encouraged after five days of intense selling as China cut interest rates for the fifth time since November in an effort to boost its slowing economy. Fears of turmoil in the the world's second-largest economy has spooked markets worldwide and triggered a global sell off. Traders also were in search of bargains after the recent bloodbath, a sell off that put large swaths of the market in a deeply oversold state.
“In what's being dubbed ‘Turnaround Tuesday,’ the Dow is soaring today -- up nearly 450 points at its session peak -- paring a big portion of Monday’s mind-boggling losses and reclaiming a foothold atop 16,000,” Karee Venema, analyst at Schaeffer’s Investment Research, told clients in a research note.
At around 1:00 p.m. ET, the Dow Jones industrial average was up about 335 points, or 2.1%. The Standard & Poor's 500 index gained 2.2% and the Nasdaq composite index gained 3.2%.
"What a difference a day makes," Paul Hickey, co-founder of Bespoke Investment Group told clients in a report before today's opening bell.
Monday, the Dow — which was briefly down more than 1,000 points — finished with its second drop of more than 500 points in as many days.The Dow had lost more than 1670 points in five days. The broader Standard & Poor's 500-stock index tumbled into official correction mode for the first time since 2011.
Tuesday's rebound rally was broad-based as all 10 sectors of the S&P 500 were higher, with technology stocks leading the way.
"Just as insane as yesterday’s moves were, we’re getting an opposite reaction today," Hickey added. "Nothing has changed in the global economy; while the Chinese move is supportive, it didnot kick off the rally. This is an oversold bounce, for now."
Hickey, however, reminded investors not to expect a full recovery overnight.
"As a reminder, stocks didn’t bottom after the Crash of ’87 until December," he reminded clients. "While we are likely to see a move higher here, it’s also possible we’ll see a retest of lows before every reluctant long is totally flushed out and the markets can truly rally."
Heading into today's session Wall Street pros interviewed by USA Today ticked off five things needed for the market to stabilize. The first was more monetary stimulus from China. Other so-called "shock absorbers" were the Fed holding off on interest rate hikes, oil prices bottoming out, pricey stocks getting less pricey and continued signs of strong economic growth in the U.S.
Wall Street was also reacting to a strong reading on consumer confidence in August and a solid read on new home sales in July, which rose 5.4% to an annualized sales pace of 507,000 new homes.
European stocks also rose sharply as France's CAC 40 index added 4.2% and Germany's DAX index was up 5%.
The People's Bank of China said the rate for a one-year loan will be cut 0.25 percentage point to 4.6% and the one-year rate for deposits will fall to 1.75%. The central bank also lowered the amount of crash reserves Chinese banks are required to hold.
The announcement was made after the close of Chinese and other Asian markets, which were volatile Tuesday as Chinese stocks plunged again and Tokyo markets also fell sharply after earlier rebounding. The Shanghai composite index declined 7.6% to 2,964.97. The index is now below the psychologically important 3,000 level.
On Monday, China's benchmark plummeted 8.5%, triggering a wave of major stock markets losses worldwide, including the Dow, which fell 3.6%.
China's smaller Shenzhen composite index also saw sharp declines, falling over 7%.
In Tokyo, the benchmark Nikkei 225 index reversed early gains before falling nearly 4%. That followed a 4.6% plunge Monday to the lowest level seen since late February.
"Relief, bargain-hunting and the realization that Fed interest rates could be lower for longer are all likely contributors to this morning’s better tone," said Jane Foley, an analyst at Rabobank in London, in comments emailed before China cut rates.
Some analysts nevertheless cautioned that the drop in China share prices reflects a necessary market correction.
"Investors are overreacting about economic risks in China," Capital Economics said in a research note Tuesday. "A combination of poor data and policy inaction in China may have triggered today's market falls but the bigger picture is that we are witnessing the inevitable implosion of an equity market bubble."
Elsewhere across Asia, Hong Kong's Hang Seng, which lost 4.6% Monday, rose 0.7% on Tuesday. Sydney's S&P ASX 200 advanced 2.7%. And Seoul's Kospi index added about 1% after shedding 3% the previous day.
China is facing a slowdown in economic growth, the banking system is short of cash, and investors are pulling money out of the country.
"More (government) measures are needed to activate the market, like reducing taxes and restoring confidence in the real economy," said Xiao Lei, a senior market analyst at Shiji Jinhang, in Beijing.
The steep loses for Chinese stocks came amid reports that Beijing may be censoring negative media coverage of China's financial markets.
George Chen, managing editor of Honk Kong's South China Morning Post, shared on Twitter an apparent image of a directive from the Chinese government ordering the removal of five critical articles from mainland China news portals. USA TODAY could not independently verify the authenticity of the order from Beijing.
However, for several hours Monday night and Tuesday morning, people in China searching for the term "stock crash" on Chinese search engines were told that "in accordance with the relevant laws, regulations and polices, some search results have not been displayed."
Contributing: Greg Toppo in McLean, Va., Hannah Gardner in Beijing and Kim Hjelmgaard in Berlin
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