- The Dow Jones industrial average rebounded on Tuesday from its worst levels by more than 1,000 points.
- Early selling had index down as much as 9.3% from its record high.
- On Monday, the Dow suffered its biggest point drop in history.
- Watch the Dow trade in real time here.
US stocks fought back on Tuesday, with the Dow Jones industrial average roaring into the market close a day after its biggest point drop in history.
After opening down 568 points, the Dow surged more than 1,000 points intraday. The index of 30 large stocks including Apple and Goldman Sachs finished up 567 points, or 2.3%.
The stock selling began Friday after a stronger-than-expected report on wages sparked worries about a return of inflation to the US. It continued this week as a combination of computer-driven trading, withdrawals from popular exchange-traded funds, and margin calls on investors who had bought stocks with debt all contributed to selling.
At its worst on Monday, the Dow was down more than 1,500 points. One casualty of the recent market action was Cboe Holdings, which traded down as much as 15% on Tuesday. The exchange is home to the Cboe Volatility Index, or VIX, and generates as much as a quarter of its revenue from products linked to the VIX. The VIX tracks expectations for market volatility and has surged as stocks have fallen, leaving some products related to it losing value fast.
Monday's stock market plunge caused the VIX to spike 84%, its most on record. That caused the VelocityShares Daily Inverse VIX Short-Term ETN (XIV) and the ProShares Short VIX Short-Term Futures ETF (SVXY), products designed to return the inverse of the VIX, to see their combined value shrink to $150 million from $3 billion, according to estimates from Macro Risk Advisors.
US stocks were pummeled Monday, with the Dow falling almost 1,200 points, the biggest single-day point drop in its history. The US's two other major indexes, the S&P 500 and the Nasdaq, were down 4.1% and 3.8%. The market's plunge caused the market's so-called fear gauge, the Cboe Volatility Index, or VIX, to spike 84%, the most since record-keeping began in 1980.
Those losses then spread to Asia, where Hong Kong's Hang Seng plunged 5.12% and Japan's Nikkei lost 4.73%. The selling then moved to Europe, where Britain's FTSE (-2%), Germany's DAX (-2.44%), and France's CAC (-2.57%) all fell.
Margin debt in the stock market hit a record last year, rising to at least $561 billion at the end of October.
Speaking about the big drop on Tuesday morning, Mike van Dulken, the head of research at Accendo Markets, said:
"Whilst the roots and drivers are sure to be discussed for days, it looks to emanate from a perfect storm of reasons including, but not restricted to, a strong 2017 rally extending into January, low volatility, low interest rates, over-optimism and complacency, over-leverage and financial engineering, all coming to a head as investors react to the possibility of higher/faster interest rates rises with bond yields creeping higher to jeopardize the current market situation.
Business Insider has been covering every angle of the sell-off:
- Wall Street lays out the case for a comeback that would quickly erase the stock market's plunge
- Fed President Kashkari gives us his take on the stock market's plunge and the economic data that triggered it
- Mohamed El-Erian tells us 3% growth is within reach in the US as long as it sidesteps 3 risks
- One word keeps popping up as Wall Street tries to explain the stock market meltdown
- The infamous 'VIX Elephant' trader just returned to harvest the gains he made when stocks went haywire
- 2 red-hot investment products just blew up, erasing almost $3 billion in minutes
- Here's what Goldman Sachs, UBS, Deutsche Bank, and more are saying about the global stock market rout
- BARCLAYS: A group of niche volatility traders will sell $225 billion of US stocks 'in the next few days'
- 'The machines took over': Inside the biggest Dow Jones drop of all time
- Hedge funds are making an unprecedented bet that's signaling more stock market pain
- The stock meltdown has made millions for a mystery trader betting that the market will go crazy
- The global stock bloodbath has nervous traders doing something not seen since the presidential ele
- Stocks are reeling over something most people were hoping for
- The weak dollar is adding fuel to investors' big new worry