Stocks Rally as S&P 500 Rebounds From Drop Into Correction

By News-Max

U.S. stocks rallied, with the Standard & Poor’s 500 Index clawing back some of its losses from a global rout that sent the benchmark into a correction amid the steepest two-day drop since the financial crisis.
The S&P 500 rose 2 percent to 1,931.67 at 10:07 a.m. in New York, after closing Monday 11 percent below its May all-time high, meeting the definition of a correction for the first time since 2011. The Dow Jones Industrial Average added 300.82 points, or 1.9 percent, to 16,172.17. The Nasdaq Composite Index climbed 2.7 percent. The Chicago Board Options Exchange Volatility Index slid 20 percent, the most since October 2013.
“I’m not surprised to see the market move up, given the magnitude of the selloff we’ve seen the past four days and the moves made by China after the market close in terms of cutting rates,” said Michael James, managing director of equity trading at Wedbush Securities Inc. in Los Angeles. “The question is whether these levels will hold, and the only guarantee is another day of volatility.”
Index futures contracts briefly extended gains earlier after China cut interest rates for the fifth time since November and lowered the amount of cash banks must set aside in an attempt to stem the country’s biggest stock market rout since 1996 and a deepening economic slowdown.
Correction ‘Breather’

After a day of wild swings, the S&P 500 lost 3.9 percent Monday to cap a 7 percent two-day retreat, the most since December 2008. JPMorgan Chase & Co. today recommended buying at these levels.
The slump that wiped $2.7 trillion off the value of global equities was triggered by the devaluation of the Chinese yuan on Aug. 11, which spurred a domino drop in emerging-market assets on concern growth in the world’s second-biggest economy is faltering. Commodities, riskier assets and exporters suffered as investors fled to safety, until yesterday, when panic selling gripped what was once the bastion of stability -- the U.S. equity market.
“The correction was a much-needed breather,” said Kully Samra, who manages U.K. clients for Charles Schwab Corp. in London. “It had been four years since U.S. stocks had seen a correction and there had been very long span of very mild equity performance.”
Economic reports may further soothe investors, and offer clues on the timing of an interest-rate increase by the Federal Reserve. Data today showed purchases of new homes rebounded in July, bolstering signs the real-estate market is picking up. Sales climbed 5.4 percent, the biggest gain this year, to a 507,000 annualized pace from a 481,000 rate in the prior month, a Commerce Department report showed. The median forecast of economists surveyed by Bloomberg called for 510,000.
A separate report showed consumer confidence increased in August. The Conference Board’s index increased to 101.5 from a revised 91 in July, the New York-based private research group said. The median forecast of economists in a Bloomberg survey called for a reading of 93.4.
Traders are now pricing in a roughly one-in-four chance the central bank will act at its September meeting, from about 48 percent just before the yuan devaluation, as the rout in equity markets has shaken confidence that the global economy will be strong enough to withstand higher U.S. rates.
Fed Bank of Atlanta President Dennis Lockhart said Monday he still expects a rate raise this year, while cautioning that a stronger dollar, a weaker Chinese yuan and falling oil prices complicate the outlook.