US stocks attempt to recover after heavy declines

Summary:

• US indices look to recover in final session of the week

• Comments from Fed’s Williams have contributed to the rise

• US500 back near the 2500 level

It’s been a testing time of late for US stock markets with heavy declines and the Dow Jones on track for its worst December since 1931 when the Great depression was choking the economy. We’ve seen a bounce in today’s trade however with all 3 of the major benchmarks moving higher, but this recovery remains fragile and tentative in nature for now.  Even after these gains however, there remains a fair way to go to stop this month going down as one of the worst Decembers in history. The final month of the year is typically good for stocks, with not only December often seeing gains but also sizable ones at that.

US stocks are set for one of their worst Decembers on record, with only 1931 exceeding the current declines. Source: FT

There’s been a growing sense of pessimism around US stocks since the Fed disappointed investors hoping for a stronger dovish message on Wednesday, and there is some suggestion that while the longer term outlook remains challenging, in the near term the selling is overdone. The equity put/call ratio has moved up to its highest level since 2004 and some traders see extreme high readings in this indicator, which suggests a far greater appetite for downside protection than upside exposure, as a contrarian signal for price gains.

Another aspect that has seemingly helped the markets move higher is comments from Fed member Williams who has been speaking on CNBC. The following comments are taken from the interview:

• The economy is strong

• We are listening to markets very carefully

• We are hearing market concerns about risk to the economy

• We will be ready to reassess and reevaluate our views

• FOMC statement wasn’t a promise to raise rates again

The overall tone of these remarks seem to be pretty dovish and the comments about the market are particularly interesting. They seem to suggest that the Fed are watching market reactions as a gauge and this seems to be a far softer approach than what Powell intimated to during his press conference on Wednesday.

The US500 has seen an attempted bounce this afternoon but the market remains under pressure and trading in the red for the 7th day in a row. Source: xStation