Stocks surged on Tuesday, posting their biggest one-day gains since markets began to sell off in July. However, the day had its tense moments, with U.S. stocks sliding into negative territory briefly in afternoon trading before rebounding toward the close.
The Dow Jones industrial average closed at 11,239.77, up 429.92 points or 4 per cent. The broader S&P 500 closed at 1172.53, up 53.07 points or 4.7 per cent. In Canada, the S&P/TSX composite index closed at 12,109.26, up 438.30 points or 3.8 per cent.
The impressive gains hide the fact that stocks continued to swing wildly. Though major indexes rose in early trading, the rally began to subside before the Federal Reserve released its monetary policy statement. The statement essentially promised to hold interest rates at exceptionally low levels until mid-2013 – marking the first time the Fed has put a date to its previous “extended period” phrase.
However, the statement did not mention the prospect of another round of stimulus in the form of quantitative easing, and dissention among voting members of the committee also raised some alarms among some observers. These disappointments contributed to a sharp, but quick, sell-off in the mid-afternoon. The Dow fell as much as 250 points and the S&P/TSX composite index surrendered about 300 points – only to snap back just as fast.
The day’s gains helped erase much of the damage sustained on Monday, when the S&P 500 fell nearly 80 points in the worst rout since 2008. Stocks that had suffered the worst in the selloff tended to see the biggest gains on Tuesday: U.S. financials rose 8.2 per cent, led by Bank of America Corp.’s 16.7 per cent gain, materials rose 5.9 per cent and consumer discretionary stocks rose 4.8 per cent – suggesting that investors saw the best value in stocks that are closely associated with an economic recovery.
The bond market had a different vision though. The yield on the 10-year U.S. Treasury bond slipped to 2.2 per cent as bond prices surged. That marked the lowest yield since the 2008 financial crisis. Gold also reflected ongoing jitters, rising to $1,743 (U.S.) an ounce, up $29.80.