After the Christmas Eve bloodbath and Christmas Day holiday, the US stock markets finally recovered with a brief but big move upward last week. On Wednesday, the Dow Jones Industrial Average (DJI) notched a 1,086.25 point gain, the biggest point gain in history, to end 5% up, soothing doubts of a prolonged bear market. On Thursday, volatility reared back, and the S&P 500 (INX) opened sharply lower before reversing to close 0.86% higher. And on Friday, in another wild trading session, the S&P 500 ended flat, down 0.12%, after intense selling in the last hour. Overall, the stock markets finished the week solidly in the green, with the three major indices rising more than 2.75% and pulling out of the bear market. However, stocks are still down nearly 10% for the month, meaning it could still be the worst December performance since 1931.
The American bond markets also performed relatively well during the volatile month. The yield on the 2-year Treasury note fell 1.4 basis points to 2.534%, thanks to investors buying Treasury notes in a flight from equities to safety. The 10-year Treasury note yield was unchanged at 2.74%, and the 30-year Treasury bond rose 1.8 basis points to 3.048%, likely as investors shied away from Federal Reserve interest rate risk. Because bond yields move inversely with bond prices, bond holders gain price increases when yields decrease. The 2-year Treasury note moved the most since the week of November 16, its yield falling to a six-month low. It seems that the government shutdown and upcoming gridlock in Congress have not yet affected investors' sentiment on bonds as safe haven assets.
Although nobody knows for sure, a theory has been proposed to explain the surge in equities this week: pension funds are buying before the year ends. According to Wells Fargo
The author owns a small long position in the S&P 500 (INX).
- 1. https://www.marketwatch.com/story/heres-just-how-crazy-this-week-was-for-the-stock-market-in-one-big-chart-2018-12-28
- 2. https://www.marketwatch.com/story/treasury-yields-stay-higher-as-investors-shift-back-into-stocks-in-week-of-turmoil-2018-12-28
- 3. https://www.marketwatch.com/story/why-pension-funds-may-be-driving-the-stock-markets-post-christmas-bounce-2018-12-28
- 4. https://finance.yahoo.com/news/one-theory-giant-stock-rebound-155005463.html