Feb. 6 (UPI) — The Dow Jones Industrial Average began to recover Tuesday after its largest single-day decline in the index’s history, a drop that also impacted markets overseas.
The Dow’s free fall Monday, which erased its gains for the year, caused a rift in global trading Tuesday — with the Stoxx Europe 600 dipping 2.2 percent and markets in Japan and Hong Kong falling about 5 percent.
On Tuesday, U.S. markets began to recover after the sinking. Just after opening bell, the Dow declined 567 points then raced back to a 350-point gain.
Peter Kenny, independent market strategist, said large investors probably led the rebound as they picked up beaten-down stocks when the Dow entered correction.
“We had an extreme sell-off followed by an extreme bounce,” said “It was a massive reversal: Nearly 1,000 points on the Dow is mind-bending.”
Asian indexes, particularly the Nikkei 225, often follow trends of U.S. markets.
“We’ve been through such a prolonged period of low volatility, and it was a question of when, not if, it would end,” Lee Porter, managing director for Asia Pacific at brokerage Liquidnet, said.
At one point Monday, the Dow fell nearly 1,600 points. The index finished at 24,342, down 4.6 percent.
Monday’s decline extended the 666-point drop that happened Friday, a drop of about 2.5 percent. The technology-heavy Nasdaq market has fallen in six of the last eight trading sessions.
Reasons for the erratic trading are unclear to analysts and investors but some have said possible causes could be worries about rising bond yields and higher inflation coupled with elevated valuations, algorithmic trading, and a complacent investor base.
Some analysts said the market’s slump, though a surprise, was looming after such a rapid advancement.
Fidelity International’s James Bateman said the prospect of inflation remaining low forever could not last.
“What we have seen is perhaps the greatest sign of real health in markets for a long time,” Bateman said. “It would be more worrying if markets didn’t react to all of this”
Longer-term investors see the declines as healthy and opportunistic.
Michael Thompson, managing director at S&P Global Market Intelligence, said the sudden selloff “struck him as more of an emotional than rational move, likely exacerbated by speculative money in the market and jittery retail investors.”
“I actually think stocks just got a lot more attractive,” Thompson said.
