On Wednesday, US stocks began to sputter amid rising global trade tensions and concerns the Federal Reserve may raise interest rates faster than investors are anticipating.
A sagging oil market hurt large energy firms, with the benchmark S&P 500 suffering its biggest drop in 10 months. Investors also fretted that trade wars would depress global growth and hurt corporate profits.
However, the Dow Jones Industrial Average managed to keep its momentum going as its rally lasted more than an hour, finishing the day up nearly 2%.
Investors shrugged off uncertainty about the labour market and expansion from the Federal Reserve, a dramatic shooting in a US school, a momentous vote in Argentina, an appearance by Turkish President Recep Tayyip Erdogan in Washington and concerns about a rift with the US.
“There is a general sentiment that maybe this is just an inflection point and that the better-than-expected economic data and especially the continued strength in the manufacturing sector would have been enough to warrant the Fed leaving rates unchanged,” said Henk Potts, an economist at Barclays in London.
There are also fears that economic growth will slow as debt begins to show up in consumer and corporate accounts. That could intensify deflation fears and prevent the Fed from raising rates too fast.
The Federal Reserve’s monetary policy meeting this week was clouded by uncertainty about the timing of future interest rate increases. New economic forecasts had raised the spectre of an increase next month.
But at the same time, the committee’s committee, known as the FOMC, set out to craft a communication strategy to explain upcoming rate increases.
According to minutes of the meeting published on Wednesday, the central bank believes that “investors’ low levels of uncertainty about future economic developments may be lowering uncertainty about future monetary policy”.
Analysts noted that investors shrugged off US President Donald Trump’s most recent harsh comment on Fed chairman Jerome Powell.
In an interview on Monday, Mr Trump said: “I think he should lower interest rates. I don’t think he has to raise them right now.”
But he also added that he was “not pleased” with Mr Powell’s actions, suggesting it could complicate cooperation with the Fed.
Mike Mulligan, a senior investment strategist at J.P. Morgan Asset Management, said in a note: “It seems that the market is not wanting Mr Trump to worry about anything right now.”
Overnight, South Korea’s Kospi index slipped 0.5% and Japan’s Nikkei 225 index closed flat. In Europe, the Stoxx 600 index of major stocks fell 0.7% after British Prime Minister Theresa May failed to pass legislation to leave the European Union.
Markets later stabilized, however, with stocks posting an afternoon rally that mirrored the strength of the US market.