Wall Street reverses gears on surging interest rates

U.S. stocks rebounded in volatile midday trading on Tuesday, following the biggest one-day declines for the S&P 500 and the Dow in more than six years.

The Dow Jones Industrial Average ended down 19.42 points at 24,893.35, while the S&P 500 index closed 0.5 percent lower at 2,681.66.

The Dow Jones Industrial Average rose as much as 381 points, to 25,293.96, and the S&P 500 Index also advanced, following the previous session's late surge.

While low interest rates have been the basis of the nine-year-long bull market in stocks, falling bond prices and rising yields augur higher interest rates.

Advancing issues outnumbered decliners on the NYSE by 2,028 to 802.

On Wall Street, all but two S&P 500 index sectors ended higher, with economically sensitive materials, technology and consumer discretionary indexes posting the biggest gains. Apple's stock declined by 2.1%. A 20 percent drop today would be almost 5,300 points on the Dow. One thing to monitor is whether this pullback is enough to shock markets out of the low-volatility environment that has prevailed in recent years - the current spike is no surprise, but we have seen similar moves before, only for volatility to dissipate'.

The Dow was up over 26 percent from January 2017 to January 2018.

"It's just the latest log on the fire", said Schumacher.

In the energy market, oil prices fell.

"It takes a number of days for the market to find equilibrium and find a clear bottom", said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey. On Wall Street, it's the equivalent of giving someone a time out. Benchmark U.S. crude lost 21 cents to $61.58 per barrel in electronic trading on the New York Mercantile Exchange. The market had run up too high, too fast and needed to let off some steam, they say. A soft auction added to the jump in yields, which move opposite prices. But the rebound showed that even after going through the worst market tumble in more than six years, some investors are still in a buying mood.

Some of the sudden plunge in the U.S. markets on Monday was pinned on algorithmic trading, which is when computers are programmed to follow specific instructions to place trades. He said the loss represented a 4.5 percent decline in the market.

It also dropped against the British pound (-0.5pc), euro (-0.2pc) and Japanese yen (-1pc).

The Standard & Poor's 500 index, a broader market barometer that many index funds track, climbed 46.20 points, or 1.7 percent, to 2,695.14. The last fall of that size came in August 2011 when investors were fretting over Europe's debt crisis and the debt ceiling impasse in Washington that prompted a U.S. credit rating downgrade.

Trading volume of more than 12.3 billion shares marked the busiest trading day since just after the November 2016 election, and topped Monday's volume of 11.7 billion.

Investors are awaiting Thursday's Bank of England meeting which should provide an update on authorities' views on the economy and timing of the next interest rate rise. But U.S. shares were set to drift lower with Dow futures down 1.1 per cent at 24,527. Britain's FTSE 100 surged 0.8 per cent to 7,200.85. Shares of Tronc Inc. soared after reports that it sold The Los Angeles Times to billionaire Patrick Soon-Shiong for around $500 million.

Even so, one couldn't blame investors for forgetting this trend, as the market didn't drop more than 3 percent on a single day all last year. On Tuesday, major companies reported another round of strong profits, with General Motors, BP, Allergan, health-care companies and others beating analysts' expectations.

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