U.S. stock indexes were volatile Wednesday as investors weighed the implications of China's easing of Covid-19 restrictions on global growth.
The three major averages were indecisive after opening higher. The S&P 500 was down 0.2% by late morning. The Dow Jones Industrial Average was down 0.2%. The Nasdaq Composite was down 0.3%.
The end-of-year period is typically a good time for stocks. During the last five trading sessions of the year and the first two of the new year, stocks often experience what is known as a Santa Claus rally. Since 1950, the S&P 500 has traded higher 78% of the time during this period for an average gain of 1.3%, according to Dow Jones Market Data.
This year, investors are contending with the effects of China’s reopening and rising global interest rates. China plans to scrap all quarantine measures for Covid-19, including requirements for inbound visitors, both foreigners and Chinese nationals. That is likely to ripple through global economies and markets at a time of slowing growth and sticky inflation.
"China's recent economic reforms have been quite unexpected, and I think that's why markets have been so volatile," said Altaf Kassam, head of investment strategy and research for Europe, the Middle East and Africa at State Street Global Advisors.
He said that investors are also still assessing the effects of tightening monetary policy around the world, which continues to weigh on sentiment. The effects of that are now starting to be felt, Mr. Kassam said.
This week's trading volume is expected to be light as investors are away from their desks during the year-end holidays. This can sometimes result in larger than normal moves in markets as investors contend with less liquidity.
Tesla shares rose 1.1% on Wednesday, recovering from a selloff the day before. The electric-vehicle maker’s stock is down about 69% this year, making it one of the worst performers in the S&P 500.
Southwest Airlines shares fell 2.3% on Wednesday, as the fallout from its holiday storm meltdown continued. According to data from FlightAware, Southwest canceled 65% of its scheduled departures on Tuesday.
Brent crude oil prices eased 2.3% to $82.35 a barrel as investors weighed the outlook for China’s reopening against climbing Covid-19 cases in the country. Investors are also assessing the effects of Russia’s ban on Tuesday of its oil and petroleum products to countries that put a cap on their sales price.
As oil prices pulled back, shares of energy companies fell. The S&P 500 energy sector lost 2%, making it the worst-performing segment of the index on Wednesday.
Bond yields moved higher on Wednesday, with the yield on the benchmark 10-year U.S. Treasury note rising to 3.865%. This followed a slight decline in yields on Tuesday.
Overseas trading was mostly muted. In Europe, the Stoxx Europe 600 edged up 0.4%. In Asia, China's Shanghai Composite fell 0.3% and Japan's Nikkei 225 lost 0.4%.
Hong Kong's Hang Seng index rose 1.6% on Wednesday, as investors reacted to China's plans to reopen its markets after they were closed on Tuesday. The Asian financial hub is joining mainland China in rolling back Covid-19 restrictions, with officials announcing that it will end policies such as obligatory vaccine proof and will scale back testing requirements for visitors.
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