[Summary] "New York Stock Market, Crazy Day" Why Did It Rebound Despite Worst Inflation?

[Image source=AP Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] "One of the craziest days of my career. (Rick Rieder, BlackRock Global Chief Investment Officer of Fixed Income)"

The U.S. New York Stock Exchange showed record-high volatility throughout the trading day on the 13th (local time). The Dow Jones Industrial Average, composed of blue-chip stocks, plunged more than 550 points intraday due to stronger-than-expected inflation, then suddenly surged 1,400 points from the low, experiencing a dizzying day.

Investor analyses are divided. Some say the sharp drop was excessive and bargain hunters expecting inflation to peak and the earnings season to improve rushed in, while others warn of additional tightening-driven negative factors, calling it a panic buy by short sellers and just a rally in a bear market.

◆Dow swings 1,500 points up and down

On that day at the New York Stock Exchange (NYSE), the Dow closed at 30,038.72, up 827.87 points (2.83%) from the previous close. This is the largest daily gain since November 9, 2020, based on closing price. On the same day, the S&P 500, centered on large-cap stocks, rose 92.88 points (2.60%) to 3,669.91, and the tech-heavy Nasdaq rose 232.05 points (2.23%) to 10,649.15.

The market literally rode a roller coaster. This explains why Rick Rieder, BlackRock’s Global Chief Investment Officer of Fixed Income, called it "one of the craziest days of my career."

When the September core Consumer Price Index (CPI) surged 6.6% year-over-year in the morning, marking the largest increase in about 40 years, the Dow plunged 550 points. However, it rebounded during the morning, fluctuating a total of 1,500 points up and down throughout the day. It was the first time since August 2011 that the Dow dropped more than 1.9% intraday but closed higher. The S&P 500 also showed its largest daily volatility since the early days of the pandemic in March 2020.

Bloomberg, based on its own data, reported that "since data collection began in 1990, there has been no case where the stock market swung so extremely in both directions in a single day." CNBC reported, "The intraday rebound from the low point of the S&P 500 is the fifth largest ever, and the Nasdaq’s rebound is the fourth largest ever."

◆Why did the market rebound?

Various analyses have emerged regarding why the market rebounded despite stronger-than-expected inflation.

First, experts say the recent S&P 500 had already fallen excessively, including six consecutive days of decline. Frank Cappelli of Capcis said, "Overall, investors may have judged that their positioning in the market was too extreme." Additionally, early earnings reports have raised hopes for a bullish market. It is also mentioned that the high inflation confirmed that day was already priced in by the market. Art Hogan, Chief Market Strategist at B. Riley Financial, said, "(The high inflation) is disappointing but not new information," noting that investors did not discover new facts, leading to the rebound.

Some analysts suggest that investors gained confidence that inflation has peaked despite the strong inflation report. Mona Mahajan, Senior Investment Strategist at Edward Jones, mentioned that housing inflation, which accounted for the largest portion of the September CPI increase, might not be as bad as the CPI report indicated, saying, "There is also some sentiment that inflation has peaked." She explained that there is a lag before rent is reflected in the CPI, and recent rent increases have been calming down. Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, also said, "Inflation is taking its last breath," forecasting that it could ease from now on.

Some analysts attribute the rebound to short sellers covering their positions and program trading. Short selling is a trading technique where investors borrow stocks they do not own to sell, expecting the price to fall, then buy back at a lower price to return the borrowed shares and profit from the difference. Matt Maley, Chief Market Strategist at Miller Tabak, analyzed, "Many investors expected a stock price plunge immediately after the CPI release, but when the decline was not severe, short sellers panicked and started buying." Hogan also mentioned the possibility that program trading influenced the market. The S&P 500 fell more than 2% intraday, triggering program trading and technical analysis.

However, pessimism is greater regarding whether the rebound can continue. Rather, it is a warning that volatility has increased. Given the confirmed strong inflation, the Federal Reserve’s high-intensity tightening is expected to accelerate. Some even suggest the possibility of a 1.0 percentage point rate hike in November or five consecutive giant steps (0.75 percentage point hikes) through November and December.

Michelle Meyer, Chief U.S. Economist at Mastercard Economics Institute, emphasized, "The more inflation indicators exceed market expectations, the more the Fed must prove its firm commitment to price stability," adding, "This means higher interest rates and economic cooling." Greg Swenson, founding member of investment bank Brigg Macadam, warned, "Getting excited about the current rally could be a mistake," saying, "It is close to a bear market rally, and worse news is coming," urging preparation for greater volatility.

This content was produced with the assistance of AI translation services.