Stocks started the week on a volatile note — with the Dow clawing back from a nearly 500-point deficit to push into solidly positive terrain — as investors absorbed a whirl of economic news.
The Dow Jones industrial average closed up 238.06 points, or 0.7%, to settle at 34,049.46. That’s a sharp contrast from morning trading and Friday’s finish — when the blue-chip index shed more than 981 points for its worst day of the year and fourth consecutive losing week.
The broader S&P 500 index added 24.34 points, 0.6%, to close at 4,296.12, while the Nasdaq finished up 165.56 points, or 1.3%, to land at 13,004.85.
Analysts attributed last week’s drop to the Federal Reserve’s increasingly hawkish tone on interest rates. Investors had already been expecting a series of 0.25% rate hikes, but Fed Chair Jerome Powell made clear last week that a 0.5% increase is a distinct possibility at the May meeting. Meanwhile, St. Louis Fed chief James Bullard has said 0.75% should not be ruled out.
Wall Street’s volatility Monday coincides with developments in China, where spiking coronavirus cases have prompted the government to order mass testing and limit transit in an attempt to contain a small cluster of new coronavirus cases. Shanghai has been locked down for more than two weeks while limited sections of Beijing enter a state of partial lockdown, according to The Associated Press. Beijing residents have been cleaning out grocery store shelves there in preparation for the possibility of stricter measures, The Post reported Monday.
Asian stocks tanked, with Hong Kong’s Hang Seng Index sliding 3.7% and the Shanghai composite index tumbling 5%.
The coronavirus resurgence China adds another layer of uncertainty for investors already focused on rising interest rates, inflation, corporate earnings, and the war in Ukraine.
“China plays a huge part in the global supply chain, so closing factories and ports has created a shortage mentality that is front and center in the financial markets right now,” said David Donabedian, chief investment officer at CIBC Private Wealth U.S.
Investors also are closely watching corporate earnings for signs of how rising costs are affecting businesses.
On Monday, Coca-Cola Co. beat analysts’ expectations when it reported a 16% jump in first-quarter net sales, but chief executive James Quincy told CNBC he sees “storm clouds on the horizon” over inflation and China. The company’s stock edged 0.5% lower.
Analysts said the stock market’s afternoon recovery was probably driven by positive expectations for the slew of corporate earnings coming out over the next several days, including General Electric, Alphabet, Capital One and Apple.
Analysts view the tech stocks as wild cards, several of which could come with significant downside risks, says Newport Beach-based investor David Bahnsen. Each company has its own story, and any one of them could report some company-specific news that hurts its stock price, such as the subscriber losses that erased more than a third of Netflix’s market value last week.
But Elon Musk’s success in landing Twitter — the social media platform’s board signed off on the $44 billion deal Monday — may have thrown fuel on the fire, said Wayne Wicker of MissionSquare Retirement.
The acquisition “provides a little more confidence in certain deals being consummated despite the dour market environment we’re in,” Wicker said. Under the terms of the deal, Twitter will become a private company and shareholders will receive $54.20 per share, according to a company news release.
Musk’s win could foster interest in the tech sector, which has taken steep losses since the beginning of the year, he said. The tech-heavy Nasdaq has
“Technology has been hammered lately, but that’s what led the recovery this afternoon,” Wicker said. “There’s an expectation that strong earnings from some of these companies are going to be well-rewarded.”
Twitter shares spiked Monday on reports that a Twitter’s board of directors was poised to accept Elon Musk’s buyout offer. Under the terms of the deal, Twitter will become a private company and shareholders will receive $54.20 per share, the company said in a news release. The deal is expected to close this year.
Oil prices also fell sharply, with West Texas Intermediate crude, the U.S. benchmark, erasing 5.3% to $96.71 per barrel. Brent crude, the international benchmark, dived 5%.
Gas prices are up a few cents per gallon from where they stood last week but are down roughly 10 cents since late March. The national average stood at $4.12 on Monday, according to AAA.