Calm returns to Wall Street - for a day

Posted February 12, 2018 4:22 p.m. EST
Updated February 13, 2018 2:19 p.m. EST

— The stock market finally calmed down Tuesday after two volatile weeks.

The Dow was up about 50 points during the afternoon. Investors are resetting after a "nice two-day bounceback," said Peter Boockvar, chief investment officer at Bleakley Advisory Group.

Throughout the day, the Dow traded in a 250-point range. For the previous seven sessions, the average trading range was more than 900.

But the smooth ride may not last. On Wednesday and Thursday, the government reports on consumer and producer prices. Investors will be watching for a pickup in inflation.

Fear about inflation drove the market sell-off that began February 2 and included two 1,000-point plunges in the Dow. Wages climbed in January at the fastest pace in nine years.

"We're looking for a pattern from different perspectives on inflation," said Quincy Krosby, chief market strategist at Prudential Financial. "We saw wages beginning to show traction. We'll see if these reports also indicate that inflation is in fact gaining."

Inflation concerns investors because it could lead the Federal Reserve to hike interest rates more quickly than planned. That would make the cost of borrowing higher and would dent corporate profits.

If the consumer price data comes in higher than investors expect, it may lead to a pickup in selling and another rocky day on Wall Street, predicted Brad McMillan, chief investment officer for Commonwealth Financial Network.

The stock market has been taking cues from the bond market. As bond prices have fallen, the 10-year Treasury yield, which reflects inflation worries, is trading near a four-year high.

Higher returns for ultra-safe government bonds could hurt demand for riskier assets like stocks.

"You very rarely have a recovery from the kind of pullback that we saw taking place last week in one day," Krosby said. "Markets need to test. And they test and they test before they find an equilibrium. That's normal, and it's expected."

The Dow added more than 700 points combined on Friday and Monday. It has recovered more than a quarter of what it lost from the market peak on January 26 through the closing low on Thursday.

Despite the comeback on Monday, the Dow and S&P 500 remain down slightly for the year. The Nasdaq is up 1.1%.

- Charles Riley, Sherisse Pham, Jethro Mullen and Matt Egan contributed reporting to this story.