US stocks pare losses as steady data calms bears
US STOCKS bounced back yesterday, following Monday’s sell-off and the bigger slump that hit Asian markets, buoyed by better data on the health of American industry.
The Institute for Supply Management (ISM) assessment of January factory conditions in New York came in slightly stronger than expected, and although factory orders fell 1.5 per cent from December, the drop was smaller than expected.
The Nasdaq, which took the heaviest US losses on Monday, bounced back 0.86 per cent to 4,031.52, while the S&P 500 and Dow recovered 0.76 and 0.47 per cent respectively.
The Chicago Board Options Exchange Market (CBOE) volatility index also fell by 10.87 per cent yesterday, after a 16.5 per cent rise on Monday. The measure, which demonstrates the instability of US markets, saw its largest gain in over 18 months during January, rising by 34.2 per cent over the month.
Monday’s drop seemed to be driven by fears for the recovery, following a huge unexpected decline in the ISM manufacturing index during January’s poor weather.
Despite the marginal recovery for US stocks yesterday, the FTSE 100 dipped slightly, down to 6,449.27 at the close, a 0.25 per cent drop.
The Nikkei plunged four per cent after opening earlier this morning in Japan, meaning the index had slumped 14 per cent from the December height, following the US sell-off.
“After a very strong second half last year, there is no obvious reason why the recovery should suddenly collapse. Any impact of slower growth in China and other emerging markets should be more than offset by the improving outlook in Europe,” said Paul Ashworth of Capital Economics.
He added that markets should keep their cool: “The broader picture is still that, with fiscal policy exerting a much smaller drag and the Fed committed to leaving its policy rate at near-zero for some time, US economic growth should remain solid.”