Wall Street Ends Flat as Global Market Fears Subside

U.S. equities traded bobbed around the unchanged line on Tuesday, ending flat as global markets found more solid footing.

The Dow Jones Industrial Average was 10 points higher, or 0.06% to 17159. The S&P 500 gained 4 points, or 0.20% to 2016, while the Nasdaq Composite shed 11 points, or 0.24% to 4891.

The consumer discretionary, technology, and materials sectors were the only three in decline, while utilities gained the most ground during the session.

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Traders around the world breathed a slight sigh of relief a day after a global market rout that resulted in losses of about $289 billion for the S&P 500 and the sixth-worst start to the trading year in 89 years.

What spooked investors in the prior session was a combination of yet another weak manufacturing report from China, a newly minted “circuit breaker” mechanism designed to prevent panic selling, and a looming expiration of a ban on large-scale asset sales.

Chinese regulators stepped in Tuesday before the market open, and in a statement said it could extend that selling ban for investors holding 5% or more in a listed company. The ban was originally implemented after last summer’s dramatic global selloff sparked by concerns about an economic slowdown in the nation, and is set to expire Friday.  Further, the People’s Bank of China injected $19.9 billion into the banking system to try and calm frayed nerves.

The moves helped Asian equity markets cap the session slightly lower. China’s Shanghai Composite index slipped 0.26%, while Hong Kong’s Hang Seng fell 0.65%, and Japan’s Nikkei declined 0.43%.

European markets also saw recovery on the session. The Euro Stoxx 50, which tracks large-cap companies in the eurozone, ended up 0.42%, while the German Dax gained 0.26% the French CAC 40 added 0.34%. The UK’s FTSE 100 rose0.72%.

Despite the stability, Chris Konstantinos, director of international portfolio management at RiverFront Investment Group, said he had “mixed feelings” about Tuesday’s market action.

“One the biggest issues that concerns me is the heavy-handed government intervention in China. For global investors, it’s difficult to find true price discovery until markets are allowed to free flow without government manipulation,” he explained. “That’s a hallmark of government in the West…but in China, with the government intervening at random times, it’s difficult for Chinese markets to find a bottom until you take some of these controls away.”

Konstantinos said it’s hard to see an end to the pattern of significant market declines followed by government injections of liquidity and controls over share sales until the government loosens some of what he called “puppet strings” around the market.

“China has put forth some significant reforms in the past 12 months including the Hong Kong-Shanghai connect, which was a big deal, and loosening the trading ban of the yuan. But until they allow that same kind of transparency and free-market philosophy, it’s tough to find a bottom.”

In commodities, oil prices traded along the flat line Tuesday after a nearly 4% pop in the prior session, before they came falling back to earth. The catalyst was increased tension in the Middle East between Saudi Arabia and Iran. After Saudi Arabia cut diplomatic ties, it was reported that the nation also will cut all commercial ties with Iran, put a stop to air traffic between the two nations, and ban its citizens from traveling to Iran.

The specter of increased tension in the region initially put upward pressure on global oil prices, but the continued glut of oil supply limited gains.

“We don’t think we’re in a situation where supply will come off line in the near-term, so we’re likely to see prices lower for longer,” Konstantinos said. “For investors, it’s less about predicting the price of oil over the next six months, and understanding what parts of the energy patch have enough margin of safety…and suitable pessimistic enough for people to start bottom fishing.”

In recent action, West Texas Intermediate crude, the U.S. benchmark, slipped 2.15% to $35.97 a barrel, while Brent, the international benchmark declined 2.15% to $36.42 a barrel.

Elsewhere, metals were higher as gold rose 0.31% to $1,078 a troy ounce. Silver gained 0.96% to $13.94 an ounce, while copper added 0.87% to $2.09 a pound.