What's going on?
America was closed for a holiday, but it was the rest of the world that was in party mode as stock prices rebounded sharply around most of the world.
What does this mean?
Japan was the biggest gainer, with its stock market jumping 7% after a brutal last week. European stocks gained about 3%. All of this followed on from Friday’s strong rally in the US, when stocks there jumped 2%. One of the best performing sectors globally was banks, which benefitted from news on Friday that Deutsche Bank would be buying back some of its bonds (not the coco’s though) – that helped alleviate some fears about whether banks had enough cash on hand to withstand the current, more challenging conditions.
Why should I care?
For you personally: Rallies in bad markets are very common – whether it’s the bottom or not is extremely difficult to tell. A chart of terrible markets will always show a series of short-term, dramatically positive bounces in the context of a longer-term, falling market. Pinpointing when stock prices have stopped dropping is extremely difficult. Which is why the most common advice is to have a long-term financial plan that is consistent with one’s objectives – and to implement such a plan in a manner that best takes advantage of such market volatility (e.g. regular contributions, ‘rebalancing’ when appropriate and, generally, ignoring the “noise”).
For markets: US stocks “bounced” off an important price level. For the second time this year, US stocks hit a low of around 1,810 for the S&P 500 before rebounding (the S&P 500 is a gauge of how the stocks of America’s 500 largest companies perform). In trader parlance, that creates “support” around that level, which means that stocks are likely to either rebound from that price or, if they fall below it, fall significantly below it. So far, they have bounced off of it – but be aware of this level should US stocks come close to it once again.