(Reuters) - U.S. stocks posted sharp gains on Friday, giving investors some solace after a week of huge swings that shook the market out of months of calm.
The Dow Jones Industrial Average <.DJI> rose 1.4 percent and the S&P 500 <.SPX> gained 1.50 percent on Friday. For the S&P and Dow, it was the biggest weekly drop since January 2016.
BRYCE DOTY, SENIOR PORTFOLIO MANAGER, SIT FIXED INCOME ADVISORS LLC, MINNEAPOLIS:
“What caught my eye is that the two-year yield briefly touched 2 percent. That seemed to signal to me that market was signaling that traders considered a pricing out of rate hikes in 2018. A June rate increase had dwindled below 50 percent. Bond investors believe that anymore weakness in the equity market would slow the Fed’s pace of rate increases, which has been projected for three rate hikes.
"The swift rebound in stocks brought back a swift rebound in the two-year Treasury yields, but less so for longer-dated yields. Right now, embrace the volatility but there will be more of shakeout in some equity ETFs which some people have no business of owning. Next week, the CPI report will be critical.”
GIRI CHERUKURI, HEAD TRADER AT OAKBROOK INVESTMENTS LLC IN LISLE, ILLINOIS:
"I’m watching some of these stocks go down and wondering if there are chances to rebalance some clients’ portfolios. But as soon as they go down, they go back up again.
"We definitely have volatility now, whereas previously we would have a short dip and then go back to normal. This week has shown that we do have some volatility and there’s a real difference of opinion about what to do. You have a fundamental difference between the economy and earnings doing well, versus interest rates going up and inflation picking up, and it’s still a question of which will dominate."
ANWITI BAHUGUNA, SENIOR PORTFOLIO MANAGER, COLUMBIA THREADNEEDLE INVESTMENTS IN BOSTON:
"The only thing that happened is that the S&P very briefly in the mid-afternoon went below the 200-day moving average. So sometimes there are participants in the market driven by technical factors, responding to things like the 50-day average, the 200-day average. So you will often see bounces off those levels. In fundamentals, I did not see any news around that time when the market started turning around.
"I don't think the market is focused on fundamentals at all. It's very volatile. There are many technical reasons for selloffs and buying. It's interesting from a day-to-day, hour-to-hour perspective, but it's not driving our outlooks long-term. The fundamentals, those are looking good for the U.S. economy.
"In the long-term, this is all a blip. Something worth paying attention to: the market is giving a signal that it's not enough to focus on growth projections, which are all decent, but you also have to look at the inflation paradigm this results in. We're approaching an economy that's pretty close to full employment, and perhaps there's not a whole lot left."
STEPHEN MASSOCCA, SENIOR VICE PRESIDENT AT WEDBUSH SECURITIES IN SAN FRANCISCO
"A lot of this could have been short covering, people who didn't want to have 'risk on' over the weekend. There was no real new-news except the 10 year had a small rally."
ANDREW BRENNER, HEAD OF INTERNATIONAL FIXED INCOME AT NATALLIANCE SECURITIES:
"Equity markets started out strong, faded and then sold off...at 1.30 we had a massive buyer come in as we hit the 200 day moving average. ... No way this is over...We sense that traders, who had assumed a lower risk profile for the markets, are in risk reduction mode...risk parity trades for certain... Bonds... without the swoon and choppiness of equities we think we would have seen 3 pct 10 years by now... but the 2.80-2.85 range is still doing a lot of work."
ANAND OMPRAKASH, DIRECTOR OF EQUITY AND DERIVATIVE STRATEGY AT BNP PARIBAS IN NEW YORK:
"It's a continuation of volatility and uncertainty ... there are institutions out there that are seriously looking to step into the equity market just because valuations at this point are starting to look pretty reasonable.... We've got institutions looking to decide when the best time get back in given the relatively more attractive valuations at this point.
"These kinds of swings take a while to fully normalize and eventually turn into an S&P rally because all the uncertainty. The equity markets have a tendency to swing pretty wildly. Volatility tends to cluster.
"I personally believe the worst is behind us."
ROB STEIN, CEO OF ASTOR INVESTMENT MANAGEMENT IN CHICAGO:
“I think it's a combination of things. There were likely people bargain-hunting, waiting until the end of the day. Interest-rate risk pressure seemed to abate a little bit. Stocks took their cue from that and started a rally.
“I don't see any reason to think that we're setting a pattern for next week or the rest of the year. The only pattern we're setting is more volatility. The market is saying, ‘I'm not sure of the valuation here.’ The economy is saying stocks are still in positive mode. The market starting point is here (today’s close), not the levels of two weeks ago, because inflation expectations and interest rates have changed, but the direction is still up.”
(Americas Economics and Markets Desk; +1-646 223-6300)