The word ‘whipsaw’ might be an understatement to describe stock markets on Friday: up big at the start of trading, down big in midday trading and now U.S. indexes are up again – and substantially – in early afternoon trading. Here’s an attempt to quantify the shifts: If you added up those three moves for the Dow Jones industrial average (up, down, up), the total comes to about 980 points. Not bad for a summer day, and very profitable for an investor who could time things perfectly.
Explaining the moves is more difficult. Well, the gains in the morning are relatively easy. The Labor Department reported that job gains in July were better than expected, providing some relief to investors who feared that the U.S. economy was heading over a cliff.
Then came the sober second thoughts – essentially that the job gains weren’t enough to feel optimistic about the economy – mixed with rumours. Bloomberg News reported that some investors were speculating that credit rating agency Standard & Poor’s was going to downgrade the U.S. credit rating, reigniting last week’s fears before Washington finally agreed on a plan to lift its debt ceiling and cut spending. That rumour has not yet been substantiated, although it seems like a weird one given that Fitch and Moody’s have affirmed their top-notch ratings on U.S. government debt.
And now, the afternoon rebound. Investors might be feeling giddy over developments in Europe, where the Wall Street Journal reported that Italy has agreed to labour reforms and a balance-budget amendment to its constitution as other European leaders were set to discuss a response to the debt crisis that has contributed to stock market volatility this week.
European stocks ended the day with substantial losses though. The U.K.’s FTSE 100 fell 2.7 per cent and Germany’s DAX index fell 2.8 per cent.