On Tuesday, U.S. stocks gained, recouping much of Monday's tech-driven selloff, as supply and demand tensions drove oil prices to multiyear highs.
The Dow Jones Industrial Average gained 1.1%, while the S&P 500 gained 1.3%, largely offsetting Monday's losses. The Nasdaq Composite Index, which is heavily weighted in technology, rose 1.5% after losing more than 2% the day before.
The stock market's recent volatility is both a product of usual seasonal volatility—September and October tend to experience greater selloffs than other months—as well as something that was unavoidable. Stock investors have enjoyed an uninterrupted surge since last March, with the S&P 500 nearly doubling, thanks to a Federal Reserve that has followed a highly supportive monetary policy.
According to Michael Gayed, a portfolio manager and creator of the Lead-Lag Report newsletter, the latest bout of volatility was both unavoidable and manageable. The S&P 500 is down less than 5% from its early September record high, including Tuesday's gains. “This is, if anything, long overdue,” he remarked.
Investors are concerned about inflation, COVID's prolonged impact on the economy, and whether the Federal Reserve will start to ease monetary policy. They've also had to worry about whether the United States will default on its debt, as well as supply-chain snarls and increasing commodity prices, which bring the inflation issue home to worried investors.
“The equity markets today are worrying more about inflation, the possibility that we’re going to then see higher rates, and the fact that that does undermine the very lofty levels that they have been trading at,” said Rob Carnell, head of research for Asia-Pacific at ING.
Mr. Gayed believes that the bond market is the most crucial thing to keep an eye on right now. The yield on the 10-year Treasury note in the United States is essentially the bond market's forecast for inflation. Investors who had relied on the Fed's conclusion that high inflation was "transitory" have been rattled by its recent surge.