US stock markets have ended a day of massive fluctuations on a high note, rebounding after recent steep losses.
The Dow Jones Industrial Average closed up 2.3%, while the Nasdaq hit 2.1% and the S&P 500 rose 1.7%.
Stocks shuttled between positive and negative territory throughout the day, their activity spanning more than 1,000 points.
On Monday, the Dow had plunged by nearly 1,200 points or 4.6%, triggering losses in Asia and Europe.
“I think what you’re seeing today is, ‘Hold on. This got overdone’. The fundamentals of the companies haven’t changed since Friday,” said JJ Kinahan, chief market strategist at online brokerage TD Ameritrade.
Analysts have said for months that the financial markets were due a correction after a long period of rising prices.
Investors are also fretting over the prospect of rising interest rates, which push up borrowing costs for companies and consumers.
The steep sell-off began last week after data in the US showed stronger than expected wage growth.
The report came amid other shifts, including new tax cuts, trade tensions, and a sinking dollar, that analysts say could lead inflation to rise faster than expected.
The conditions pose a challenge for the Federal Reserve, which will need to raise interest rates to counter inflation, without moving so aggressively that it severely curbs economic activity.
It is not clear how the changing economic currents, including tax cuts, will affect company financials ultimately, said Michael Bapis, managing director of The Bapis Group at Hightower, a wealth management firm in New York.
“You’re seeing that volatility now because there’s uncertainty,” he said.
Earlier on Tuesday, Japan’s Nikkei 225 closed down 4.7%.
Markets in London, Frankfurt and Paris had initial losses of up to 3%, before recovering some ground.
London’s FTSE 100 closed down almost 200 points or 2.6% at 7141. Frankfurt’s Dax and Paris’s CAC were down 2.3% and 2.4% respectively.
On Monday the FTSE 100 closed at its lowest level since April of last year.
The falls follow some good years for investors.
In 2017 the Dow in the US was up 25% and London’s FTSE 100 rose 7.6%.