U.S. stocks bounced back Thursday from the previous day’s sell-off, but experts warned that market volatility is likely to remain high in the wake of political turmoil in Washington that helped drive the Dow Jones Industrial Average down nearly 400 points Wednesday.
It was the worst day for the U.S. equities trading in eight months, with the Dow, S&P 500 and Nasdaq Composite indexes all closing down sharply on the heels of a New York Times report that President Donald Trump asked fired FBI Director James Comey to stop the FBI’s investigation into fired National Security Adviser Michael Flynn’s ties to Russia.
On Thursday, revelations that Trump aides had numerous undisclosed contacts with Russian officials kept market tensions high. But the major indexes still managed to recoup at least some of their losses from Wednesday.
The Dow ended the day Thursday up 56.09 points to 20,663.02, while the S&P 500 gained 12.75 points to close at 2,369.78. The Nasdaq finished the day up 43.89 points at 6,055.13.
Still, investors remained nervous, based on the Dow’s inter-day trading range from a low of 20,553.45 in early morning trading to a high of 20,759.20 by mid-afternoon.
At least one local expert said the volatility reflects fears that Trump may succumb to criminal as well as Congressional investigations into possible collusion between this campaign and Russia, which has led to calls from both sides of the political isle for his impeachment.
“Our government has to provide stability, and if we get into a situation where our president is going to be impeached or goes through the impeachment process, then that introduces a great deal of uncertainty as to what U.S. policy will be,” said Bert Wheeler, an economics professor at Cedarville University. “What investors try to do is trade on what they believe is going to happen in the future. And if it appears that we’re just going to have complete uncertainty, then that just introduces an element in which investors say I’m not sure what I want to do right now. Maybe I don’t want to sit on this stock. Maybe I want to sell it.”
While some investors may turn bearish in the short-term, Wheeler doesn’t anticipate a prolonged downturn because the underlying fundamentals for most publicly traded companies still look good.
In fact, more than three quarters of the companies in the S&P 500 who reported earnings Friday beat most analysts’ earnings expectations, and more than half topped consensus revenue forecasts. And for the rest of the year, Wall Street analysts project S&P 500 companies’ earnings will grow by nearly 10 percent, while revenues are expected to advance by more than 5 percent.
“We’re not setting the world on fire, but things do look better than they have in awhile, and that really won’t change because of the political outside influence that really is not one of the fundamentals that drives stock markets,” Wheeler said.