After rebounding strongly in the morning, U.S. stocks reached their peak shortly before noon on Tuesday and spent the afternoon in retreat, eventually closing at their lowest levels of the day.
The Dow and S&P 500 both surrendered earlier gains of 1.4%, ending the day down 0.7% and 0.9%, respectively. NASDAQ, up 0.9% at its highest point, finished with the biggest loss, off 1.2%. Small cap stocks, which had also been up as much as 1.4%, closed down 0.1%.
Stocks largely moved in the opposite direction of oil prices, which had fallen sharply before rebounding and ending with a slight increase. At its lowest level of the day WTI had dropped to $53.60, its lowest intraday level since May 2009, before rallying and ending up at about $56 a barrel. Yet energy was the best performing sector among the 10 S&P sectors, rising 0.7%, while seven groups closed in the red and two finished unchanged. Treasury bond prices continued to rise as skittish investors sought safety, driving up the price of the 10-year note by 0.6% to lower its yield by six basis points to 2.05%, its lowest level since May 2013.
European shares closed sharply higher after oil prices rebounded and economic news was mostly positive. After a rocky start, equity prices surged late in the afternoon and closed at session highs, in direct contrast to U.S. trading. The Stoxx Europe 600 closed with a gain of 1.7% after having been down more than 1.2%. German and French stocks ended up well over 2%. Sovereign bond prices were also mostly higher, the 10-year German bund gaining more than ¼ point in price to reduce its yield by three basis points to below 0.6%, a record low. Markit Economics’ composite output index for the euro zone rose to 51.7 in December from 51.1, which had been a 16-month low, while the manufacturing PMI rose to 50.8, a five-month high. The composite output index for Germany fell to 51.4, an 18-month low. But that was somewhat cancelled out by a big increase in German investor confidence. The ZEW Center’s index of investor and analyst expectations jumped to 34.9 in December from 11.5 last month, well above market expectations of 20 and its highest level since May. “Confidence in the German economy seems to be slowly returning,” the Center’s president said.
But Russian stocks and the ruble continued to plunge even after the central bank raised its benchmark interest rate to 17% on Monday. The dollar-denominated RTS index dropped 12%, its biggest decline in more than six years, while the benchmark Micex index fell more than 8% before ending 1.4% higher, rebounding with the rest of Europe. The ruble plunged as much as 19% to 80 against the dollar, its biggest decline since the 1998 bond default, before recovering to about 69, another new closing low.
Asian stocks were mostly negative except in mainland China, where stock prices jumped despite – or possibly because of – a manufacturing index falling into contraction territory. The Shanghai composite rose 2.3% to close above 3000 and reach its highest level since April 2011 on speculation that the government will need to further ease monetary policy. HSBC’s flash manufacturing PMI slid to 49.5 this month, a seven-month low, indicating that weakness in the economy continued even after the central bank cut interest rates last month. But other Asian markets were down sharply, with both Japanese and Indian stocks falling 2% and Hong Kong losing 1.6%.
U.S. housing starts came in slightly weaker than expected in November. Starts fell 1.6% to an annualized rate of 1.03 million, the first decline since August, although the October number was revised higher to 1.05 million from 1.01 million. Housing starts now have stayed above the one million rate three straight months, the first time that’s happened since early 2008. Building permits fell 5.2% after rising 5.9% in October.
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