Investors dumped commodities for stocks yesterday resulting to a record upsurge of the stock indices, having been on a downward streak for the past week. NASDAQ made the largest bounce back of 3.59% to close at 13,255.55. DJIA gained 653.61 pts and closed at 33,286.25, while the S&P 500 gained 2.57% to 4,277.88, marking its best one day gain from June 2020. On the other hand, commodity prices nosedived. Brent Crude oil index plunged to $110.73 per barrel while gold declined to $1,985.40 per ounce.
Bargain stock purchases occur when investors realize undervalued stocks and add them to their portfolio. Yesterday was such a day with the market being at its lowest since the year began. Investors took advantage of the discounted stocks in an effort to average down having suffered significant losses particularly in the past week. This resulted to more gainers than losers on all the indices with the Dow having only 4 losers while NASDAQ had 10 losers only.
The geopolitical tension is also easing. Russian and Ukrainian foreign ministers are set to open talks today in Turkey. Russia’s only demand is Ukraine’s legal assurance to retain ‘neutrality’ in military alliance and not join NATO, a request that Ukraine has gestured consideration for a diplomatic resolution of the ongoing conflict. However, according to Timothy Ash, a strategist at BlueBay Asset Management, the talks would be difficult. Speaking to CNBC, he said, “These talks are going to be very very difficult, that’s the reality… The two sides are, in my mind, fairly far apart.” The just concluded South Korean elections with Yoon Suk-yeol taking the seat also pave way for enhanced political relations between the U.S. and South Korea. His aggressive approach will lean more towards the U.S. and rougher on China and North Korea.
Iraq and United Arab Emirates have further signaled likelihood for OPEC to increase its output in oil and gas production. This will largely lower the pressure on oil prices as the sanctions on Russian oil supplies send disruptions on supply. Although it is a sigh of relief, the supply shocks are already felt in the market and it will take some time for firms’ supply chains to adjust adequately and for the economy to absorb the shocks fully. In the short-term, the price of crude oil together with other commodities will rise gradually, more so due to the underlying rising inflation.
The volatility in the stock market is far from over and jerks are expected to continue. There is yet no fundamental backing to support continuous gains. Firms are expected to incur higher operational costs, which will eat into their financial statements while consumer spending is also being weakened by inflation. Besides, being a period with policy shifts, a lot of economical shifts are expected to occur, which will further weigh on volatility.
Wednesday Stock Highlights
