North American markets reversed earlier losses to close significantly higher in volatile trading on Tuesday after Wall Street's rout yesterday heightened concerns that a pull-back from record highs could lead to more heavy losses.
The benchmark Dow Jones industrial average surged 569 points to finish up 2.3 per cent to 24,915 after losing as much as 567 points in the morning session.
It was the index's biggest one day percentage gain since January 2016. The index had lost 1,175 points or 4.6 per cent yesterday — marking its largest daily points drop in its history.
But Benjamin Reitzes of BMO Capital Markets highlighted in a note that while the points decline was a record, "on a percentage basis, it's the 28th largest drop since 1947."
The S&P 500 gained 1.8 per cent to 2,695 points, marking its biggest one-day percentage gain since November 2016.
Yesterday, it lost 4.1 per cent, which was its biggest daily percentage drop since August 2011.
Both the Dow Jones industrial index, which consists of 30 big U.S. firms, and the S&P 500, which is considered a broader market barometer, had erased their gains for this year on Monday.
The tech-heavy Nasdaq composite closed up 2.1 per cent to 7,116.
Shares of tech giant Apple boosted the Nasdaq, rising more than four per cent after it said there has been strong demand for replacement iPhone batteries.
Reitzes said that fundamentals certainly were not driving the "market turmoil."
"The only data point of the day showed the U.S. non-manufacturing sector started 2018 in robust health," he said.
"Indeed, while the sharp drop in equities could act as a bit of a headwind for growth, investors should be encouraged by the continued strength in the economic backdrop."
Canada's Finance Minister Bill Morneau backed that sentiment Tuesday, saying it's important to separate the real economy from the stock market.
"Our real economy is doing well. The Canadian economy has seen a huge amount of job growth. The U.S. economy is doing well," he said in Ottawa.
"What we're seeing in the stock market is some investors looking at the success of the stock market over the last little while and considering whether that success is appropriate, based on expectations."
Volatility and bonds
The CBOE Volatility index, known as the VIX, which is considered the best gauge of expected volatility on Wall Street, hovered between positive and negative territory on Tuesday. It closed down nearly 20 points at 29.98.
On Monday, the VIX had surged to its highest level since 2015.
Will Delwiche, strategist at Robert W. Baird told Reuters that the "choppiness" in trading today is markets trying to figure out where we should be.
"Some of what we saw yesterday suggests we are near at least a short-term low," he said. "Then the question is what the rallies look like after that."
Meanwhile, investors continued to rush to the safety of government bonds. The yield on the 10-year Treasury note rose to 2.75 per cent — hovering around four-year highs again.
As interest rates rise, the value of existing bonds falls, and borrowing to invest becomes more expensive.
Canadian shares closed higher for the first time in seven days, with the S&P/TSX composite index up 0.2 per cent to 15,364.
The market had closed down 1.7 per cent on Monday, hitting its lowest level since mid-September.
Health-care stocks led the recovery on the index with marijuana producers among the biggest gainers.
Shares of the country's biggest marijuana producer, Canopy Growth, closed up 19 per cent.
Commodities and currencies
Oil prices also weighed on all the indexes, with benchmark U.S. crude down 76 cents to $63.39 US per barrel.
The Canadian dollar traded at 79.81 US cents, down from Monday's average price of 80.11 cents.
The greenback was higher against most major global currencies as investors flocked to its safe-haven appeal.
Around the world
Overall, global markets have lost some $4 trillion US as the benchmark MSCI's 47-country world index fell nearly eight per cent since Friday.
Asia's biggest market — Japan's Nikkei 225 Index — lost 4.7 per cent, while Hong Kong's Hang Seng plunged over five per cent.
Even mainland China's Shanghai Composite was not immune to the rout after closing higher on Monday. It lost 3.4 per cent.
In Europe, the benchmark Stoxx 600 closed down 2.3 per cent after dropping to its lowest level in six months.