Wall Street continues to wobble

Increased volatility is highlighting market uncertainty, as the Dow continues to give back most of the last two months’ gains.

The past week has seen Wall Street fire off a couple of decent days in which it has tried to get bullish momentum back into the markets. However, these days have immediately been followed by selloffs equalling or beating the gains made.  

So what has changed from last year? Well, the obvious answer is the two cuts made to the Fed’s debt-purchasing scheme. These, of course, still leave the markets benefiting from a sizeable amount of the $65 billion scheme, which is ultimately finding its way into equities. However, the gradual removal of the safety net supporting the equity markets has dented confidence levels of the buy-on-dip bulls. At the same time, US equities are once again hitting earnings multiples last seen in 2007/2008, raising renewed questions about whether market valuations are warranted.

Since mid-January we have seen the Dow Jones break below the 50- and then the 100-day moving averages. Any move below the 15,600 level could well result in the index cracking through the 200-day moving average too. As long as we don’t break below Friday’s intraday low of 15,604, we could well see a short-term rally back up to 15,700. However, traders should remember that we have the non-farm payrolls due later in the week.  

Wall Street chart

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.