Stocks Close Higher, but Growth Worries Remain

Stock market trader
Stock market trader

Stocks took an uncomfortably circuitous route to posting broad-based gains Tuesday, as a better-than-expected outlook on global recovery from the Australian central bank was tested by a bleaker assessment of the U.S. economy from the bond market.

The blue-chip Dow Jones Industrial Average ($INDU) followed Asian and European equity action by vaulting as much as 170 points on solid volume early in the session. At the same time the S&P Volatility Index ($VIX) , or the VIX, plummeted more than 5% to below 30. Any time the so-called investor fear gauge rises above 30, short-term traders jump into the market because heightened volatility is fast money's friend, says Cort Gwon, director of trading strategies and research at FBN Securities.

But now those short-term traders are finally taking a much-needed vacation, Gwon says, allowing the market to trade less on technicals and more on fundamentals. So, it wasn't a surprise when bargain hunters stepped in to scoop up stocks, which, by some measures, look plenty cheap.

Fundamentals, however, cut both ways on Tuesday. By mid-session stocks turned negative and struggled for breakeven levels up to the finish. And the VIX jumped back above 30.

Tumbling Treasury Yields

The culprit? A bond market rally that's flashing slower growth -- perhaps even a double-dip recession -- up ahead. The yield on the 10-year Treasury note remained stuck below 3%, where it's been mired since before the holiday break. Now the 30-year T-bond has also gotten into the act: Its yield broke 4% to hit 3.93% Tuesday.

Still, by session's end, the Dow added 57 points, or 0.6%, to close at 9,743. The broader S&P 500 ($INX) rose 5, or 0.5%, to 1,028. The more volatile, tech-heavy Nasdaq Composite ($COMPX) gained 2 points, or 0.1%, to finish at 2,094.

The euro continued to rally, topping $1.2618 against the dollar. That action and other albeit tepid signs of increased stability in the European financial system likewise hurt gold. The yellow metal lost $15.50 to settle at $1,028 an ounce on the Comex division of the New York Mercantile Exchange (CME). Oil for August delivery rose 10 cents to $72.24 a barrel.

For more on Gwon's second-half outlook for equities, see the video below: