Volatility haunted U.S. stock markets again Tuesday as stocks swung dramatically between highs and lows before holding on to a slight gain.
The up-and-down day came after two sessions of heavy sell-offs marked by nervousness that an overly aggressive Federal Reserve may stifle economic growth.
The Dow Jones industrial average finished higher for the first time in three days, as the blue chips recouped some steep Monday losses to close at 23,675, up 82 points or 0.4 percent. The Dow’s best performers were Boeing and Goldman Sachs.
The Standard & Poor’s 500-stock index finished the day level — one-hundredth of 1 percent to the upside. Six of 11 sectors landed in positive territory, led by technology, real estate and consumer discretionary companies.
“It shows how many balls are in the air, between the Federal Reserve, the potential shutdown of the government, oil prices,” said Michael Farr, a Washington investor. “It’s as if there are four car wrecks at the same time, and you don’t know which one to watch.”
The energy sector was a major drag, as the three-month dive in oil prices wracked global producers. Oil prices are 35 percent off their October peak and at their lowest price in 16 months.
Dow stalwarts Chevron and ExxonMobil were down 2.26 percent and 2.4 percent, respectively.
The Nasdaq composite was up 0.4 percent on the day but is down 1.73 percent for the year.
The Dow and S&P are down more than 4 percent each this year and off to their worst December since the 1931 trenches of the Great Depression.
Despite the modest gains, Tuesday brought a welcome exhale after spasms that took all three indexes down 2 percent Monday.
Investors were heartened by an upbeat federal report showing that November housing starts increased 3.2 percent over October.
“It’s a good opportunity to buy the dip,” said Jeff Schulze, investment strategist at ClearBridge Investments. “The housing data released today shows both starts and permits easily beating expectations. That takes the wind out of the bearish economic narrative.”
But the buy-the-dip narrative didn’t last. Anticipation over the Federal Reserve dominated thinking. Investors are betting that the Fed on Wednesday will announce a quarter-point increase in interest rates, but many are hoping that the central bank will put the increases for 2019 on hold.
“A Fed meeting can go either way,” said Brett Ewing, strategist at First Franklin Financial Services. “You can’t trade on hope; it’s not a great investment strategy. We are expecting a dovish tone from the Fed for 2019. Anything other than that, the Santa rally will not show up.”
The Dow started Tuesday with a bang, shooting up 334 points and resting between 300 and 150 to the upside for most of the day. But the market surrendered much of that as the afternoon progressed. The Dow even faded into negative territory before picking up some momentum at the close.
“There’s no real buyers stepping into this market, and there’s no reason for them to step in before the Fed meeting,” Ewing said.
December historically brings a positive vibe for investors — and a Santa Claus rally.
European markets were down across the board, with the London FTSE 100 finishing down 1 percent. The German Dax, French CAC 40 and the European Stoxx 600 were all in the red.
Stocks have been in a funk the past three months as investors work through a number of potential threats, including the U.S.-Chinese trade dispute, Wednesday’s Fed meeting, low oil prices and, now, a possible U.S. government shutdown at the end of this week.
“The market is oversold over worries regarding China and the Fed,” said Sam Stovall, investment strategist at CFRA. He is managing expectations.
“There will probably be a Santa rally,” he said. “But it will probably be two ho’s and not ho-ho-ho.”
Oil prices are still getting slammed as producers from Russia to Saudi Arabia to the West Texas oil fields pump like mad.
Benchmark West Texas Intermediate plunged nearly 8 percent to $46 per barrel Tuesday, smashing through the $50-per-barrel threshold that some view as the break-even point for oil producers. Producers find it more difficult to make profits below $50, although technological advances have pushed the break-even point even lower for some efficient drillers. Brent Crude was down nearly 6 percent, posting $56 per barrel.
“It’s a pretty violent drop, for sure,” said energy analyst Pavel Molchanov of Raymond James. “Momentum is taking oil lower. Yesterday, momentum took equities down as well. Some of the drop in oil is in conjunction with broader macroeconomic, recession fears that are taking down the equity market as well.”
Analyst John Kilduff of Again Capital said breaking the $50 barrier Monday “brought out the sellers in droves.”
The Organization of the Petroleum Exporting Countries, led by Saudi Arabia, and its non-OPEC allies, including Russia, earlier this month agreed to cut production by 1.2 million barrels to stem a 30 percent price slide since October. The cut, however, does not kick in until 2019.
“The oversupply is getting worse, not better, right now,” Kilduff said. “Russian oil production has gone up, along with U.S. shale output. A troubled North Sea oil field came back online this week, as well, adding to the near-term oversupply. The slowing economic outlook is weighing on the demand side of the price equation.”