U.S. stocks rallied in early morning trading Wednesday, following a volatile day in China.
Both the Dow Jones industrial average and the Standard & Poor’s 500-stock index jumped by more than 2 percent at the open.
The rebound came after the Dow closed down 200 points, or about 1 percent, Tuesday in a late sell-off.
All 30 Dow stocks jumped higher this morning and all 10 sectors of the S&P 500 rose, with tech stocks leading the rally. Apple was up more than 3 percent in early trading.
But by 10:30 a.m., the Dow had pared back some of those gains, leading market strategists to wonder if the rally would last throughout the day.
“What we’re looking for is to make sure this is the beginning of more than a bounce, the beginning of a repair in the market,” said Quincy Krosby, market strategist for Prudential Financial.
Worries about a slowdown in China have rocked global stock markets over the past several days. In Europe, the Stoxx Europe 600 index fell steeply late last week and early this week before rebounding on Tuesday. The index ticked lower Wednesday after U.S. markets opened and was down 1.7 percent shortly before noon.
The Shanghai Stock Exchange Composite Index dropped 1.3 percent Wednesday after a volatile day of trading, and the smaller Shenzhen Composite Index fell 3.1 percent. The Shanghai index swung wildly during trading, falling nearly 4 percent in the morning, then rising more than 4 percent before closing with losses.
The global volatility underscored fears that the world economy might be weaker than previously thought. A broad slowdown overseas and a sustained decline in stock markets could increase the risks to the U.S. expansion.
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That has lowered the likelihood that the Federal Reserve will withdraw its support for the nation’s recovery when it meets in September. Just a few weeks ago, investors had widely expected the central bank to raise its benchmark interest rate for the first time in nearly a decade at the meeting. But traders have now slashed those odds, and a growing chorus of prominent economists believe the Fed will wait.
New York Fed President William Dudley seemed to confirm that sentiment Wednesday morning. In public remarks, he said that international developments “do have relevance” for the U.S. outlook. He added that a rate hike in September is “less compelling” but left open the possibility of a last-minute move at the central bank’s December meeting.
“I really hope we can raise interest rates this year,” Dudley said.
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In an effort to stop China’s wildly swinging stocks and support the economy, China’s central bank cut its benchmark interest rate Tuesday and freed banks to lend more.
The move temporarily buoyed a comeback in U.S. markets, which was erased, however, in the last hour of Tuesday trading.
But it evidently failed to calm nerves in China, where nervous investors appear to be waiting for more direction from Beijing.
“In the space of hours, for stocks to move around in that type of range, that clearly suggests people are directionless in terms of what is going to happen next,” said Evan Lucas, market strategist at IG in Melbourne, Australia, on Wednesday.
The central bank moves followed several days of steep declines in Chinese markets. On Tuesday, Shanghai's main index dropped 7.6 percent, compounding steep losses Monday that pulled down markets around the world.
The rout has raised questions about the Chinese government’s approach to handling equity markets, as well as the health of the economy as a whole, with investors and analysts outside China adopting a far more bearish view.
Some now say that may have led to an overcorrection in global markets, as investors read mayhem in China's highly volatile stock markets as a signal of what is happening in the larger economy.
“I think there has been an exaggerated fear because people don't follow what is happening, and they see stock markets and extrapolate to something about China having a hard landing,” said Wang Tao, Hong Kong-based chief China economist for the UBS financial services company.
“There has been little new information in the last few weeks to suggest that things are getting worse, other than the market being allowed to correct itself.”
That correction comes as something of a surprise. When the Shanghai and Shenzhen markets climbed to historic heights this spring, only to crash by summer, Chinese authorities took extraordinary measures: forcing big investors to buy stocks and prohibiting some from selling.
In the last week, though, the government has taken a more hands-off approach. During four days of sharp losses, the China Securities Finance Corp. engaged in no large-scale buying, leaving investors wondering if the days of state share-buying are over for now.
“The market self-adjustment is a good thing,” JP Morgan economist Haibin Zhu told the Associated Press. “The positive sign is the ‘national team’ no longer intervenes and keeps buying, which was causing market distortion.”
“It’s difficult to manage all their objectives at the same time,” he said. “I would say the stock market decline is the least important among all of them.”
Still, it seems, they need some scapegoats.
Authorities on Tuesday announced an investigation of market malpractice at a state regulator. Xinhua, the state-controlled news agency, published a comment from a central bank researcher who blamed the worldwide market turmoil on the Federal Reserve rate cut.
Chinese authorities, meanwhile, have moved to assure investors that despite the ongoing volatility, and their failed efforts to stop it, the economy is sound.
“Currently, global economic trends are opaque and confusing, and market volatility is quite large, and this has had some impact on the Chinese economy,” Premier Li Keqiang said at a meeting Tuesday, according to Chinese media reports.
“But fundamentally, the overall stability of the Chinese economy has not changed, and positive factors sustaining a turn for the better in the real economy are accumulating.”
Ylan Q. Mui also contributed to this report.