Sharp movements in global markets aren't typical during the festive hiatus but investors should hang on to something as the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is about to get swept higher by the surge of buying on the S&P 500.
US stocks staged one of the best one-day rallies since the start of the 2009 bull market run with the S&P 500 surging 5% as the Dow Jones Industrials Average jumped nearly 1,100 points and the NASDAQ added 5.8%.
The S&P 500 was a whisker away from slipping into a bear market (a peak-to-trough fall of 20% or more) on Christmas eve but the Nikkei 225 and the NASDAQ weren't so lucky as both indices succumbed to the bears before Christmas.
The post-Christmas rebound is great news for ASX shares, particularly those hardest hit in the October sell-off. These include the Aristocrat Leisure Limited (ASX: ALL) share price, Santos Ltd (ASX: STO) share price, Australia and New Zealand Banking Group (ASX: ANZ) share price and Treasury Wine Estates Ltd (ASX: TWE) share price.
Why markets are surging
There are a few factors driving the overnight recovery. The most significant is strong US retail sales over the all-important holiday period with the likes of Amazon.com, Inc. reporting record sales.
Just as significant, retail experts here are also tipping decent Christmas sales growth and that will go a long way in assuaging investor worries that our economy (and that of the US) is at risk of slipping into a recession.
Another driver for the US stock rally was reassurance from Kevin Hassett, the chairman of Trump's Council of Economic Advisers, that US Federal Reserve chair Jerome Powell's job was safe.
Speculation that Trump was trying to oust Powell was partly blamed for the market meltdown.
Further, a bounce in the oil price added to the bullish sentiment with the West Texas Intermediate (WTI) crude price rallying 8.7% to US$46.22 a barrel.
Has the ASX 200 bottomed?
This leads us to the question of whether we've seen the worst of the sell-off is over.
The bulls will point out that the painful correction on the ASX 200 is driven by sentiment and not fundamentals as domestic and global data continue to point to further economic growth here and in the US.
Employment is the key to everything and the labour market appears to be resilient in the face of the rising wall of worry.
On the other hand, there will be very little liquidity in the market over the next three weeks and that means it won't take much for markets to overreact to news.
I think there are more reasons to be upbeat towards ASX shares in 2019 but we will need to brace for periods of big drops and rises.
Hope you don't suffer from vertigo.
