U.S. stock indexes staged a dramatic intraday rebound on Tuesday, with the Dow Jones Industrial Average swinging more than 1,000 points from its low, as robust bank earnings provided a counterweight to escalating trade tensions with China.
The blue-chip Dow, which had tumbled as much as 615 points during the session, closed up 424 points, or 1%. The S&P 500 erased a 1.5% decline to end 0.3% higher, while the Nasdaq Composite pared steep losses to finish down just 0.2%.
The comeback was fueled by a strong start to the second-quarter earnings season. Citigroup and Wells Fargo shares surged 4.6% and 8.3%, respectively, after reporting better-than-expected profits. JPMorgan Chase and Goldman Sachs also topped earnings estimates, though their shares edged slightly lower.
“The earnings reports this morning tell us the financial sector appears to be doing well and the consumer appears still healthy,” said Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management. “That’s some of what’s driving market sentiment now.”
The early sell-off was triggered by Beijing’s move to sanction five U.S. subsidiaries of South Korea’s Hanwha Ocean, prohibiting entities in China from doing business with them. The Chinese government said the action aimed to strengthen its national security.
This escalation added to recent volatility stemming from the U.S.-China trade dispute. Late last week, former President Donald Trump threatened to impose tariffs of 100% or more on Chinese imports if re-elected, sparking a sharp market drop. On Sunday, he sought to calm markets with a social media post stating, “Don’t worry about China, it will all be fine,” which fueled a rally on Monday.
The market’s “fear gauge,” the Cboe Volatility Index, reflected the ongoing uncertainty. It spiked to a four-month high above 22 before retreating below 20 in afternoon trade.
“It’s just not clear what the off-ramp is as we head into the month’s end for China and the U.S. when it comes to trade tensions, and I think that’s something the market is still trying to deal with,” Haworth said.
While the financial sector rallied, technology stocks like Nvidia remained under pressure, highlighting the sector’s sensitivity to trade frictions.