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Dow roars back for 567-point gain after scary start

Another dramatic day on Wall Street: Stocks nosedived, then they soared.The Dow plunged 567 points at the open...

Posted: Feb 7, 2018 11:38 AM
Updated: Feb 7, 2018 11:38 AM

Another dramatic day on Wall Street: Stocks nosedived, then they soared.

The Dow plunged 567 points at the open on Tuesday and briefly sank into correction territory -- a drop of 10% from its record high. But those losses quickly vanished, and the index ended the day with a mirror-image gain of 567.

It was the Dow's biggest point increase since August 2015 and the fourth-largest in history. The percentage gain of 2.3% is the biggest since January 2016.

The huge swing shows how volatile trading has become in what was once a calm and booming stock market.

"We had an extreme sell-off followed by an extreme bounce," said Peter Kenny, an independent market strategist and founder of Kenny's Commentary. "It was a massive reversal: Nearly 1,000 points on the Dow is mind-bending."

After starting the day sharply lower, the S&P 500 closed with a 1.7% gain, its best since November 2016. Bespoke Investment Group said it was the biggest open-to-close rally since 2011.

The powerful comeback may reflect a realization by investors that the economy is still strong, even if stocks flew too close to the sun earlier this year.

"Sometimes the market does get disconnected from economic reality to the upside and it needs to get in line," said Jack Ablin, chief investment officer at Harris Bank.

However, he said, "the fundamentals of the economy and credit markets remain sound."

Related: Are Trump's tax cuts backfiring on Wall Street?

The stock market freakout of 2018 hit a crescendo on Monday when the Dow plunged a record 1,175 points. The 4.6% plunge was the index's worst day since August 2011 and knocked it into the red for the year.

With Tuesday's bounce, the Dow recovered about half the losses from the day before. It's about 6% off its all-time high.

David Kotok, co-founder of Cumberland Advisors, called it a "wild rollercoaster ride." He said that when Dow futures plunged 1,000 points overnight, it amounted to "climactic panic selling" that could signal a bottom for the market.

On Capitol Hill, Treasury Secretary Steven Mnuchin reminded lawmakers that the stock market is up 30% since President Trump's election. He said the administration is focused on recently enacted policies like tax cuts as a driver of economic growth in the long run.

"The stock market has been functioning very well, and we continue to believe in the long-term impact of the stock market," Mnuchin said before the House Financial Services Committee.

Related: Market fear is back in a big way

The tremors on Wall Street spread around the globe. Stocks in Europe and Asia posted heavy losses.

Major markets in Europe shed roughly 2%, and stocks in Germany, Sweden and Spain fell into a correction. Japan's Nikkei nosedived 4.7%, while Hong Kong's Hang Seng suffered a loss of 5.1%.

After months of unusual calm, fear has raced back onto Wall Street.

The VIX index of market volatility spiked by a record 116% on Monday, to the highest level in more than two years. It ripped higher again Tuesday, then calmed down. At the end of the day, the VIX was down about 20%.

David Lebovitz, global market strategist at JPMorgan Asset Management, said that while volatility may remain "elevated" for days, "we are closer to the end than we are to the beginning."

One factor helping the stock market: The bond market has calmed down. The 10-year Treasury yield spiked to a four-year high of 2.85% in recent days because of worries about inflation. But it receded significantly on Tuesday, to 2.79%.

That's a relief because investors have become concerned that the era of extremely low interest rates that propped up stock prices for years may soon be over. The fear is that the U.S. economy could overheat, forcing the Federal Reserve to aggressively raise interest rates. That could take a lot of air out of the stock market.

Despite the heavy selling, the Dow is still up more than 6,500 points since President Trump's election. But that's down significantly from the 8,000-point gain it was showing a few weeks ago.

It's becoming clear stocks ran up too far, too fast in the euphoria over Trump's tax cuts and the improving economy. The U.S. unemployment rate is sitting at 17-year lows and global growth has gained momentum.

"The tax cut euphoria drove stocks up at an unsustainable pace," Scott Minerd, global chief investment officer at Guggenheim Partners, wrote in a research note.

Market analysts have long been saying the market was overdue for a cooling-down period. Now that the sell-off has happened, at least some investors feel emboldened to start buying again.

"The fundamentals are great. Earnings have been on fire," said Ed Yardeni, president of the investment advisory firm Yardeni Research. "I'm still bullish."

-- CNNMoney's Donna Borak and Rishi Iyengar contributed to this article.

Mississippi Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 110592

Reported Deaths: 3171
CountyConfirmedDeaths
Hinds7731171
DeSoto655177
Harrison478481
Jackson429178
Rankin380086
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Lee339279
Forrest292777
Jones281682
Washington250697
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Lauderdale2329130
Lamar212038
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Neshoba1795111
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Warren151854
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Pontotoc143019
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Copiah133336
Marshall130026
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Scott122729
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Tate112339
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Hancock76527
Attala76325
Clarke70948
Clay66621
Jasper66016
Walthall63427
Calhoun60912
Noxubee59516
Smith57716
Claiborne53016
Montgomery52723
Tunica51817
Lawrence48914
Yalobusha47914
Perry47522
Carroll45812
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Stone44614
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Humphreys39916
Jefferson Davis39311
Webster36313
Wilkinson32920
Kemper31615
Benton3004
Sharkey27714
Jefferson26210
Franklin2283
Choctaw2036
Issaquena1063
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Alabama Coronavirus Cases

Confirmed Cases: 152272

Reported Deaths: 2621
CountyConfirmedDeaths
Jefferson22300372
Mobile14273314
Tuscaloosa9886132
Montgomery9615196
Madison895192
Shelby700260
Lee643066
Baldwin636967
Marshall425348
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Etowah399149
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Houston362332
DeKalb313326
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Limestone268327
Walker264192
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Autauga198928
Franklin198131
Jackson197914
Russell18993
Colbert188927
Dallas184527
Blount182723
Chilton178731
Escambia170328
Covington164429
Coffee16299
Dale161551
Pike130112
Tallapoosa126986
Chambers126643
Clarke126116
Marion103929
Butler99640
Barbour9819
Marengo96421
Winston88613
Geneva8297
Pickens79317
Randolph79314
Lawrence78830
Bibb78513
Hale73729
Cherokee71414
Clay70312
Lowndes69827
Bullock63417
Henry6286
Monroe6259
Washington62012
Crenshaw58830
Perry5796
Conecuh55413
Wilcox55412
Fayette54012
Macon52819
Cleburne5207
Sumter46421
Lamar4555
Choctaw38612
Greene33316
Coosa1963
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