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| World Markets Jump as Investors Seek Signals in the Noise | World Markets Jump as Investors Seek Signals in the Noise |
| (about 1 hour later) | |
| Every major stock market in the world soared higher on Thursday, rebounding from the lows they had hit earlier in the week. | Every major stock market in the world soared higher on Thursday, rebounding from the lows they had hit earlier in the week. |
| Just days ago, when fear was palpable, stocks seemed to be signaling that the world economy might come to a halt. Yet by the end of the upswing on Thursday, investors’ gloom had eased. | Just days ago, when fear was palpable, stocks seemed to be signaling that the world economy might come to a halt. Yet by the end of the upswing on Thursday, investors’ gloom had eased. |
| In the United States, stocks, as measured by the Standard & Poor’s 500-stock index, have climbed more than 6 percent from the low at Tuesday’s close. And after days of dizzying declines, Chinese stocks ended their day Thursday over 5 percent higher, after a last-minute rally. On Friday, the main index in Shanghai was up more than 1 percent in early trading. | |
| China’s problems, underscored by its surprise currency devaluation on Aug. 11, were seen as the main cause of the recent global rout. | |
| Bystanders were left struggling to understand the market gyrations. Do the pessimists have a stronger case than optimists right now? Or perhaps they are both right in certain ways, which is why even Wall Street pundits struggle at times to make sense of all the swings and apparent crosscurrents. | Bystanders were left struggling to understand the market gyrations. Do the pessimists have a stronger case than optimists right now? Or perhaps they are both right in certain ways, which is why even Wall Street pundits struggle at times to make sense of all the swings and apparent crosscurrents. |
| At the end of the day, discerning the messages coming from the financial markets can be a fruitless task. “The market tends to whisper,” said Kenneth J. Monaghan, a portfolio manager who focuses on high-yield bonds at Amundi Smith Breeden, an asset management firm. “And there’s a lot of background noise that makes it harder to hear that whisper.” | At the end of the day, discerning the messages coming from the financial markets can be a fruitless task. “The market tends to whisper,” said Kenneth J. Monaghan, a portfolio manager who focuses on high-yield bonds at Amundi Smith Breeden, an asset management firm. “And there’s a lot of background noise that makes it harder to hear that whisper.” |
| At the best of times, investors’ mood swings can make stock markets hard-to-follow indicators that reflect as much ignorance as knowledge. But the action in the markets this week has been particularly confusing. | At the best of times, investors’ mood swings can make stock markets hard-to-follow indicators that reflect as much ignorance as knowledge. But the action in the markets this week has been particularly confusing. |
| The S.&P. 500 closed up 47.15 points, or 2.4 percent, on Thursday. It is now down 6.7 percent from its record high, reached in May. But on Tuesday, when the index closed at its lowest level this week, it was 12.4 percent off that high. | |
| At those lows, a bear market — when stocks decline 20 percent or more — did not seem out of the question. But after two strong up days, it seemed plausible that the six-year bull market that started in 2009 might now resume. “What has happened the last couple of days gives you some confidence,” said Philip J. Orlando, a senior portfolio manager at Federated, a mutual fund firm. “It was a little bit of a panic and an irrational move,” he added, referring to troughs earlier in the week. | At those lows, a bear market — when stocks decline 20 percent or more — did not seem out of the question. But after two strong up days, it seemed plausible that the six-year bull market that started in 2009 might now resume. “What has happened the last couple of days gives you some confidence,” said Philip J. Orlando, a senior portfolio manager at Federated, a mutual fund firm. “It was a little bit of a panic and an irrational move,” he added, referring to troughs earlier in the week. |
| The Dow Jones industrials average leapt 369.26 points, or 2.3 percent, to 16,654.77 on Thursday. It is now down 9.05 percent from its all-time high, which means it is no longer in a correction, the Wall Street term for a market decline of 10 percent or more. The Nasdaq, which contains a lot of technology stocks, was up 2.5 percent on Thursday. | The Dow Jones industrials average leapt 369.26 points, or 2.3 percent, to 16,654.77 on Thursday. It is now down 9.05 percent from its all-time high, which means it is no longer in a correction, the Wall Street term for a market decline of 10 percent or more. The Nasdaq, which contains a lot of technology stocks, was up 2.5 percent on Thursday. |
| It was even a good day for the price of oil, which has borne the brunt of the bearishness over China and the global economy. The benchmark New York crude contract jumped $4.18, or nearly 11 percent, to $42.78 a barrel. | It was even a good day for the price of oil, which has borne the brunt of the bearishness over China and the global economy. The benchmark New York crude contract jumped $4.18, or nearly 11 percent, to $42.78 a barrel. |
| Stock and bond prices are driven by things that happen in the real word, like corporate earnings and economic releases. During the selling, then, it was important to ask whether major economies and profits were really going to weaken considerably. After all, a scare about global growth last fall forced stocks sharply lower, only to rebound strongly in the following months. | Stock and bond prices are driven by things that happen in the real word, like corporate earnings and economic releases. During the selling, then, it was important to ask whether major economies and profits were really going to weaken considerably. After all, a scare about global growth last fall forced stocks sharply lower, only to rebound strongly in the following months. |
| And, in fact, there were a string of positive economic releases in the United States this week, capped by the release on Thursday of revised gross domestic product numbers showing that the economy grew at a robust 3.7 percent. Positive surprises cropped up in Europe, too. Spain’s economy is now growing at over 3 percent, according to a release on Thursday. | And, in fact, there were a string of positive economic releases in the United States this week, capped by the release on Thursday of revised gross domestic product numbers showing that the economy grew at a robust 3.7 percent. Positive surprises cropped up in Europe, too. Spain’s economy is now growing at over 3 percent, according to a release on Thursday. |
| Plenty of problems exist in the world that could flare up and drag down global growth. China’s economy, for instance, appears to be in a bind, underscored by what appears to be erratic policy making by its leaders. Those leaders have intervened to shore up the stock market, promote bank lending and loosen monetary policy. But such moves could stifle the role of market forces as the country aims to reorient its economy so that consumer spending plays more of role in driving growth. | Plenty of problems exist in the world that could flare up and drag down global growth. China’s economy, for instance, appears to be in a bind, underscored by what appears to be erratic policy making by its leaders. Those leaders have intervened to shore up the stock market, promote bank lending and loosen monetary policy. But such moves could stifle the role of market forces as the country aims to reorient its economy so that consumer spending plays more of role in driving growth. |
| “The pace of monetary easing seen in recent months, and the relative lack of communication to explain it, has created the impression, rightly or wrongly, of an increasingly panic-stricken Chinese central bank,” Christopher Wood, an analyst at CLSA Limited, a leading brokerage firm in Asia, wrote on Thursday in a research note. | “The pace of monetary easing seen in recent months, and the relative lack of communication to explain it, has created the impression, rightly or wrongly, of an increasingly panic-stricken Chinese central bank,” Christopher Wood, an analyst at CLSA Limited, a leading brokerage firm in Asia, wrote on Thursday in a research note. |
| The pressure on developing countries is likely to remain. In particular, companies from emerging markets that have borrowed heavily in dollars may now find it harder to pay back such debts as the dollar increases in value against emerging market currencies. If economies in developing countries then slow, they might buy less from the United States and Europe, damping growth in both places. | The pressure on developing countries is likely to remain. In particular, companies from emerging markets that have borrowed heavily in dollars may now find it harder to pay back such debts as the dollar increases in value against emerging market currencies. If economies in developing countries then slow, they might buy less from the United States and Europe, damping growth in both places. |
| “International developments have increased the downside risk to U.S. economic growth somewhat,” William C. Dudley, president of the Federal Reserve Bank of New York, said on Wednesday. “This could lead to a slower global growth rate and less demand for U.S. goods and services.” | “International developments have increased the downside risk to U.S. economic growth somewhat,” William C. Dudley, president of the Federal Reserve Bank of New York, said on Wednesday. “This could lead to a slower global growth rate and less demand for U.S. goods and services.” |
| And if global market mayhem does weigh on growth, central banks like the Federal Reserve can step in to stimulate economies. Central bank interventions can provide some support and certainty to financial markets. After all, Mr. Dudley’s remarks — in which he expressed less enthusiasm for a possible increase in interest rates by the Fed next month — helped set off the latest rallies in stocks. | And if global market mayhem does weigh on growth, central banks like the Federal Reserve can step in to stimulate economies. Central bank interventions can provide some support and certainty to financial markets. After all, Mr. Dudley’s remarks — in which he expressed less enthusiasm for a possible increase in interest rates by the Fed next month — helped set off the latest rallies in stocks. |
| But central bank interventions can create uncertainty over the longer term. Investors continually wonder whether rising stock and bond prices are the result of steps taken by the central bank to stimulate the economy and ask what will happen to financial markets when the central bank steps back. And analysts see problems in the underlying economy that they say central bank stimulus, sometimes called quantitative easing, cannot fix. | But central bank interventions can create uncertainty over the longer term. Investors continually wonder whether rising stock and bond prices are the result of steps taken by the central bank to stimulate the economy and ask what will happen to financial markets when the central bank steps back. And analysts see problems in the underlying economy that they say central bank stimulus, sometimes called quantitative easing, cannot fix. |
| “Q.E. has become the go-to policy response for central banks, but low productivity and heavy debt overhangs will continue to weigh on growth,” analysts at RBS wrote in a research note on Thursday. But for all the skepticism about quantitative easing, it appears to have helped stoke stronger growth in the United States than in other developed countries. Or perhaps the bulls are right for now about the stimulus, and the bears will be vindicated when it finally ends. | |
| No one really knows when the stimulus will end, of course. Over the coming months, that means markets will most likely move unpredictably as investors interpret pronouncements from central bankers. Still, people who are not investing actively can be reassured by one thing: Recent history shows that short-lived stock market corrections that do not turn into bear markets typically do not cause businesses to stop investing and people to stop spending. | No one really knows when the stimulus will end, of course. Over the coming months, that means markets will most likely move unpredictably as investors interpret pronouncements from central bankers. Still, people who are not investing actively can be reassured by one thing: Recent history shows that short-lived stock market corrections that do not turn into bear markets typically do not cause businesses to stop investing and people to stop spending. |
| Or as Mr. Dudley put it on Wednesday: “The stock market has to move a lot — and stay there — to have implications for the U.S. economy.” | Or as Mr. Dudley put it on Wednesday: “The stock market has to move a lot — and stay there — to have implications for the U.S. economy.” |