Whiplash: Wall Street Caps Volatile Session with Big Gains

After a volatile final hour of trading, Wall Street capped the session firmly in positive territory as traders cheered oil’s biggest gain in six years, and a better-than-expected read on 2Q GDP.

The Dow Jones Industrial Average was 370 points higher, or 2.27% to 16654. The S&P 500 rose 47 points, 2.43%, to 1987, while the Nasdaq Composite ended up 115 points, or 2.45% to 4812

All 10 S&P 500 sectors ended in positive territory, with energy leading the advances.

Today’s Markets

Thanks to a two-day rally, the Dow and Nasdaq jumped out of correction territory, while all three major averages closed the prior session with the biggest percentage gains since 2011.

On the session, the Dow saw a 381-point swing.

The second reading on second-quarter gross domestic product helped propel U.S. equity futures higher ahead of the opening bell. The Commerce Department reported the nation’s economy grew at an annualized pace of 3.7% during the quarter, a faster pace than the 2.3% growth rate originally thought. Economists had expected the second print to show a pace of 3.2%.

“The headline was better than anticipated, but if you look within the report, it’s a bit mixed,” Lori Heinel, chief portfolio strategist at State Street Global Advisors said. “The build in inventories bode well for more pressure in the second half, and continued strength in the dollar. It was a mixed bag, but generally constructive and reinforces our view that the economy is on solid footing.”

No doubt the Federal Reserve will be taking note of the better-than-expected read on 2Q GDP, and Wall Street will keep an ear pointed in the direction of Jackson Hole, Wyoming, where Fed officials kicked off the first day of their annual retreat. While Chairwoman Janet Yellen will not be in attendance, market participants are sure to comb through a slew of comments from other officials in attendance to see whether the recent global turmoil will put the brakes on a rate hike.

Kansas City Fed President Esther George said though the economy has been improving enough to enforce the rate-hike conversation, she wants to “wait and see” how the data shakes out before supporting an increase.

The comments come on the heels of reassurance from New York Fed President and FOMC Vice Chairman William Dudley on Wednesday that the argument for a September liftoff proved to be “less compelling” over the last couple of weeks. He stressed, though, that the case could become more compelling before the FOMC’s next meeting if the economic data continues to be strong.

“We still think the Fed moves this year, but it’s looking increasingly like September is off the table unless we see a dramatic improvement in the market backdrop and strong indicators in economic policy,” Heinel said. “The Fed isn’t heavily weighing the market volatility, they’re more concerned about continued improvement in employment and signs inflation is getting back to targets.”

She continued by saying recent statements from Fed officials shows the global volatility and its potential impact on the U.S. economy has given them pause, and that they’ll be more sensitive to the impact of a rate hike that could come too soon.

Global markets built on gains as they cheered the rally in the U.S.

In China, the Shanghai Composite Index surged 5.34% while Hong Kong’s Hang Seng jumped 4.96% and Japan’s Nikkei rose 1.08%.

European markets piggybacked off the euphoria. The Euro Stoxx 50, which tracks large-cap companies in the eurozone rallied 3.47%. The French CAC 40 jumped 3.49%, the German Dax gained 3.18%, and the UK’s FTSE 100 saw a 3.56% increase.

Heinel said despite the last day of positive momentum, markets should buckle up for more volatility.

“We saw lots of volatility in fixed income and currency, but not until the last few weeks have we seen it manifest in equity markets. We’re in a slow-growth mode environment where we have major players jockeying to maintain growth and capture whatever growth they can. It will lead to more volatility in bonds, currency, and stocks as participants grapple with the net impact to profitability,” she said.

In commodities, crude oil prices surged on the back of positive momentum in global equity markets, seeing the biggest gain in more than six years. U.S. crude traded up 10.26% to $42.56 a barrel, while Brent, the international benchmark, climbed 9.48% to $47.24 barrel.

Gold traded to the downside, falling 0.27% to $1,121 a troy ounce, while silver rose 2.07% to $14.38 an ounce. Copper, meanwhile, jumped 3.91% to $2.32 a pound.

The yield on the benchmark 10-year Treasury bond fell 0.002 percentage point to 2.172%.

In currencies, the euro declined 0.67% against the U.S. dollar, while the greenback shed 0.06% against the Chinese yuan.