Home Markets News & Opinions Dow Rebounds Following 3-Day Skid; Nasdaq Escapes Correction

Dow Rebounds Following 3-Day Skid; Nasdaq Escapes Correction

Sam Bourgi
Last Updated September 23, 2020 2:29 PM
  • The Dow Jones Industrial Average rebounded Wednesday morning.
  • The major U.S. indexes are recovering from major declines over the past three sessions. Between Thursday and Tuesday, the majors fell between 5.5% and 10%.
  • Apple shares rallied sharply in pre-market trading and were up 3% after the open.

The Dow and broader U.S. stock market rallied on Wednesday, as investors went bargain hunting on technology shares following a brutal three-day skid.

Dow, S&P 500, Nasdaq Rise

All of Wall Street’s major indexes opened in positive territory and were on track to end a three-day losing streak. The Dow Jones Industrial Average opened 211 points higher.

dow jones, djia
The Dow Jones Industrial Average rallied by as much as 283 points Wednesday. | Chart: Yahoo Finance 

Apple Inc. was among the Dow’s biggest gainers, rising 3%. Dow Inc., Salesforce.com, and Chevron Group were also among the biggest gainers.

The broad S&P 500 Index  of large-cap stocks jumped 1.3%, with ten of 11 primary sectors reporting gains. Information technology was the biggest gainer, followed by materials and industrials.

Rebounding tech shares drove the Nasdaq Composite Index sharply higher. The tech-heavy index rose 1.8% on Wednesday, partially offsetting a 10% decline that dragged the Nasdaq into correction territory .

Investors Bracing for Heavy Selling Pressure

The U.S. presidential election in November is expected to trigger heavy volatility in the U.S. stock market.

A measure of implied volatility known as the CBOE VIX continues to trade well above the historical average–a trend that was observed even when stocks were at record highs earlier this month.

VIX broke above 30 last week for the first time since July. On Wednesday, it fell 5% to 29.88. The so-called “fear index” trades on a scale of 1-100, where 20 represents the long-running average. Anything above that level implies higher than usual volatility.

The VIX’s October futures contract is trading at a significant premium compared with other months. That means investors are expecting rocky trading conditions ahead of the election.

cboe vix volatility index
VIX futures contracts suggest heavy volatility is coming in October, possibly in the lead up to the U.S. presidential election. | Chart: vixcentral.com 

Democratic candidate Joe Biden holds a sizable lead over President Trump in most major polls, but as we saw in 2016, polling data aren’t always indicative of how voters will sway on election day.

Biden’s lead over Trump  is as big as 12 points in the latest USC Dornsife poll and as small as six points in the Morning Consult survey.

The stock market’s performance in the three months before the election plays a significant role in determining the outcome. According to Dan Clifton of Strategas Research Partners :

The S&P 500 has predicted every presidential election winner since 1984 and 87% of the winners since 1928, and it’s really about the performance of stocks in the 90-day period before the election.