The much-feared collapse on world stock markets failed to materialise after Wall Street's near-record fall on Monday evening, but there are few in the markets who believe that the current uncertainty in the markets is anywhere near an end, given the scale of the volatility in New York yesterday.
Wall Street recovered in early trading, but with dealers staggered by the level of volatility, the market oscillated wildly and within an hour of opening had plunged 150 points before rebounding. Later in the morning, the Dow was up almost 3 per cent. In the later session, some of the volatility went out of the market and at the close the Dow was up 288.36 at 7,827.43.
Dealers said that the market is caught between those who fervently believe that the selling has been overdone and that fundamentally equities will still offer the best return and the other camp who believe that the likely slowdown in world economies means that a move to the safety of American treasury bonds is the best option.
Some of Wall Street's most influential investment houses have taken starkly different approaches to the recent slump in the market, with Goldman Sachs believing that the correction - if that is what it is - has been overdone. Merrill Lynch recommends a move into bonds even after Wall Street's 512-point fall on Monday and the move by US treasury bonds to their lowest yields in history.
Goldman Sachs equity strategist, Ms Abby Cohen, said yesterday that she had increased her weighting of equities in her balanced portfolio from 65 per cent to 72 per cent, reaffirming her bullish stance on the US stock markets.
Market sources said Ms Cohen's had reiterated her stance that the downturn in the US equity markets, triggered by the political and economic developments in Russia and the widening of equity risk premium, has been excessive.
"In the United States, we believe that these movements have been excessive, particularly with regard to equities and non-Treasury bonds," her note said. Merrill Lynch could not have taken a more opposite approach with chairman Mr David Komansky and chief operating officer Mr Herbet Allison advocating a move into bonds, even after Monday's severe stock market sell-off.
In a note to Merrill Lynch staff, the executives adopted a negative tone and said that Merrill analysts see stock market turbulence continuing, following the feverish sell-off on Monday.
"With regard to the US stock market, our experts believe that after a climactic low followed by an interim rally, there will likely be a retesting of the lows as stock prices align with slowing corporate earnings growth." With Wall Street recovering in its early session, major European markets clawed back early losses of nearly 3 per cent to close down between 1 and 2 per cent on the day.
The exception to the pattern of recovery was the Dublin market, where share prices fell by almost 5 per cent with over £2 billion wiped off the value of the market.
Trading volumes in Dublin were very low, and dealers said that most institutional investors had stayed clear of the market as prices were driven lower by panicky private investors.
They added that there were indications that the institutions were back in the market at the lowest levels of the day, but that "bottom-pinching" did not prevent the ISEQ falling to 4066.93, not far above its 4022.07 low for the day.
At the closing level, the ISEQ has lost virtually all of its gains this year and is down nearly 26 per cent from its April 21st high. Since that high-point, over £11 billion has been wiped off the value of the Irish market.
London led a slump in equity prices across Europe but managed to limit losses after the Wall Street clawed back part of its huge losses sparked by the deepening Russian crisis.
London's FTSE 100 index of leading shares closed down 80.3 points, or 1.52 per cent, at 5,169.1 points, with prices supported by bargain hunting, a 1.9 per cent rise on Tokyo's Nikkei index, and an improved Wall Street.
An opening sell-off in London saw £26 billion sterling wiped off the value of shares and the Footsie plunging 2.76 per cent in reaction to the overnight nose-dive of 6.36 per cent in the Dow Jones.
It was a similar picture throughout Europe as markets plunged, then rallied in line with New York.
In Frankfurt, the second-biggest European market, the DAX index opened 3.24 per cent lower, but recovered sharply at midday to close 0.87 per cent lower at 4791.81 points. The CAC-40 index in Paris see-sawed all day, but closed only 0.15 per cent lower at 3.646.29 points.
The flight from stock markets into bonds pushed prices up and yields down across Europe.
The yield on the benchmark 10-year German government bond was not far from its record low: it stood at 4.193 per cent in midmorning on Tuesday, just off a low of 4.175 per cent last week.
