Stocks Rebound but More Volatility ahead?

By Joyce Yu

Philadelphia, PA–Wall Street bounced back from its largest two-day loss for more than a year as strong corporate earnings continue to bolster investors’ sentiment. Analysts expect the market to continue its rally in the longer term but there may be downside risks in the near term.

Investors turned their attention back to Corporate America Wednesday. Boeing, the best Dow stock since the start of 2017, surged more than 5% after revealing record annual profits. The company also feels very optimistic about 2018 due to strong demand for jetliners.

The Dow shed 2% in the first two days of this week, its worst two-day loss since September 2016. The drop turns out short lived but shows how the markets have suddenly become more turbulent. The VIX volatility index has spiked nearly 30% this week to five-month highs.

Wall Street veteran, chief investment strategist at Raymond James told CNBC there were some signals of “potential downside vulnerability” in February, based on his model. “Sentiment got too optimistic,” he said. “These things tend to last 14-plus years. So we’re nine years into this one. I think you’ve got at least another five, six, seven years left in this thing, and not many people believe it.”

In the shorter term, Katie Stockton, chief technical analyst told CNBC in an interview along with Saut, “I think we need several more percent to the downside. That would help work off those sentiment excesses that the market has. And, of course, it would be associated with market volatility. But it should be very short-lived.”

Macro-economic data continues to render support to the markets. ADP said the United States created a better-than-expected 234,000 private-sector jobs in January. That could be a good sign ahead of Friday’s more closely watched government jobs report.

Now the biggest question mark is whether the Federal Reserve, which is set to issue its statement today, will be forced to adjust its plan of gradual rate hike with rosy economic outlook, booming equity markets and strong corporate earnings. The US central bank is widely expected to keep interest rates on hold, but investors will be looking for hints that would all but confirm a possible tightening in March or the pace of additional tightening through the rest of this year.

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