Dow, Nasdaq close out of correction as stocks extend rebound

27.08.2015 23:33

Dow, Nasdaq close out of correction as stocks extend rebound

Evelyn Cheng |

582

COMMENTSChevronjumping more than 6 percent as the greatest blue chip advancer.

Apple jumped nearly 3 percent. The stock remains in correction territory after closing out of a bear market on Wednesday.

“Obviously the rally is continuing this morning. It’s basically strength here after the good economic news we got,” said Peter Cardillo, chief market economist at Rockwell Global Capital. He said stocks have likely hit a bottom. “The China concerns are about to subside as the market concentrates on the (U.S.) economic data.”

The second estimate of second-quarter GDP came in at 3.7 percent, topping the first read of an annualized 2.3 percent.

“I thought it was a very pretty number, particularly the revisions,” said Marie Schofield, chief economist and senior portfolio manager at Columbia Threadneedle Investments. “The principle areas where we saw those revisions (such as final sales) were important, gives the underlying trend in demand and growth.”

However, she said with the increased trade deficit and buildup in inventories she is “not as encouraged by the second half as the second quarter.”

The earliest Schofield expects a rate to come is in October, with a greater probability for January.

In a sign of continued improvement in the labor market, weekly jobless claims came in slightly lower than expected at 271,000, marking thefirst decline in five weeks.

July pending home sales rose 0.5 percent, holding steady from an upwardly revised June reading of a 0.5 percent increase.

Bond yields trimmed gains, with the 10-year at 2.17 percent and the 2-year at 0.68 percent. Earlier, the 10-year yield hit 2.2 percent, its highest level since Aug. 19.

The Treasury Department’s auction of $29 billion of 7-year notes at a high yield of 1.930 percent was met with slightly above-average demand.

The U.S. dollar traded mixed, weaker against emerging market currencies and stronger against the euro and yen. The euro traded near $1.12 and the yen held around 120.96 yen against the greenback.

“EM (currencies) are up today because there’s been such a massive unwind in the last week or so,” said Jason Leinwand, managing director of Riverside Risk Advisors. He noted positive sentiment on the U.S. economy as supporting the dollar against the euro and yen.

Gold futures for December delivery settled down $2.00 to $1,122.60 an ounce.

“The combination of stronger economic data from both the U.S. and Europe and more stable China and EM, combined with a somewhat more dovish Fed postponing rate hikes is definitely good news for both the U.S. and Europe,” said Ilya Feygin, senior strategist at WallachBeth Capital.

“The U.S. market has already partially reacted yesterday and will open about 0.8 percent higher this morning,” he said. It faces overhead resistance less than 1 percent above here and buying on the elevated opening gap has not been a good tactical buy point in this more volatile market with lower liquidity.”

The major averages had their best day in four years on Wednesday. After five consecutive days of triple-digit declines, the Dow surged 619 points into Wednesday’s close, finishing the day at 16,285. The S&P 500 was up nearly 73 at 1,940.5. The Nasdaq surged more than 4 percent to 4,697.

The gains supported global markets on Thursday, with the DAX and STOXX Europe 600 both surging more than 3 percent and China’sShanghai Composite index closing up 5.4 percent to reclaim the critical 3,000 mark. The Nikkei and Hang Seng closed up 1.08 and 3.60 percent, respectively.

The positive close in China was the first in five trading sessions, after improved sentiment in the U.S. managed to outweigh the fears surrounding China’s slowing economy, which has been partly responsible for the recent selloff seen in global stocks.

As of the U.S. close on Wednesday, losses on the S&P Global BMI totaled $3.45 trillion, according to Howard Silverblatt of S&P Dow Jones Indices.

Read MoreStocks are ready for more rock and roll

However, many analysts cautioned the selloff could have further to go despite the near-term rally.

In a note late Wednesday, S&P Capital IQ’s Sam Stovall said, “The S&P 500 breached critical support at 2034 and let loose to the downside. This move leaves a formidable zone of resistance at the high-volume area of 2092-2115 that has been building since March. According to i10Research, there is no reason to turn bullish until this zone is eclipsed.”

The CBOE Volatility Index, widely considered the best gauge of fear in the market, traded near 27.

After spiking above 50 on Monday, the VIX closed near 30 on Wednesday, still far above the 20 level that most analysts would be more comfortable with.

“The VIX at 30 with a rally like that (Wednesday) is pretty surprising. To me with the VIX at 30 shows there’s still a lot of uncertainty out there,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab.

Investors will also eye a key meeting of central bankers at Jackson Hole, Wyoming. The annual Economic Policy Symposium starts on Thursday and brings together academics, financial market participants and many of the world’s leading central bankers.

The event will be scrutinized for signals on near-term monetary policy action in the U.S., although many monetary policymakers are seen opting out, including U.S. Federal Chair Janet Yellen and Daniel Tarullo, a member of the Fed’s Board of Governors.

Read MoreWhy is Janet Yellen skipping Jackson Hole?

Federal Reserve Bank of Kansas City President Esther George said in a CNBC interview from Jackson Hole that the central bank should normalize interest rates, a view the non-voting Fed member has consistently held. She added it’s important for the Fed to understand the extreme volatility in stock markets this week, but cautioned that markets are focused on the near term.

On Thursday, New York Fed President William Dudley said the case for a U.S. interest rate hike in September has become less compelling. The remarks added support to gains in equities. However, he did not say September was off the table, instead adding that the Fed would review data and market conditions.

Some major earnings were also due for release Thursday, includingDollar General, Tiffany and Signet Jewelers before market open.Autodesk, GameStop, Smith & Wesson and Splunk are due after the bell.

Tiffany earned an adjusted 86 cents per share for its latest quarter,missing estimates by 5 cents. Revenue was also below forecasts, with the luxury goods retailer pointing to the negative effects of a strong dollar and challenging economic conditions in certain markets.

Read MoreEarly movers: TIF, SJM, DG, MIK, CSX, TSLA, STJ, GES, PVH & more

Dollar General beat estimates by 1 cent with quarterly profit of 95 cents per share, though revenue was slightly below forecasts. The discount retailer said both customer traffic and average purchases grew during the quarter.

The Dow Jones Industrial Average closed up 369.26 points, or 2.27 percent, at 16,654.77, with Chevron leading all blue chips higher.

The S&P 500 closed up 47.15 points, or 2.43 percent, at 1,987.66, with energy surging 4.9 percent to lead all 10 sectors higher..

The Nasdaq closed up 115.17 points, or 2.45 percent, at 4,812.71.

About seven stocks advanced for every decliner on the New York Stock Exchange, with an exchange volume of nearly 1.3 million and a composite volume of nearly 4.9 billion in the close.

The issues with data display on the exchange, a “cosmetic problem”, did not seem to affect trading.

CNBC’s Peter Schacknow contributed to this report.

On tap this week:

Thursday

Jackson Hole Fed symposium begins

Friday

8:30 a.m.: Personal income

10 a.m.: Consumer sentiment

Saturday

12:25 p.m.: Fed Vice Chairman Stanley Fischer at Jackson Hole; topic U.S. inflation

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