Bank or bust: What on earth is going on with the US stock market?

If you've been closely following the big swings in the US stock market recently, you'll be forgiven for feeling a little motion sick.

Volatility has been the name of the game over the past three trading days, in moves mirrored here by the S&P/ASX 200 Index (ASX: XJO).

Last Thursday, the S&P 500 Index (SP: .INX) ended the day up 2.6%, after initially tumbling 2% on open following higher-than-expected inflation figures. Those moves were reversed on Friday when the S&P 500 finished down 2.3%.

But investors in the US stock markets shook off that malaise yesterday (overnight Aussie time) to again send the S&P 500 up 2.7%. Tech stocks fared even better, with the Nasdaq Composite (NASDAQ: .IXIC) closing up 3.4%.

Reaching for your Dramamine yet?

What's happening with the US stock market?

Investors and traders alike appear to be on a knife edge over whether markets are signalling a bottom or whether there's more downside to come.

Last week's volatility was driven by the higher-than-forecast September inflation data. The rally on that higher data looks to have been caused by a wave of short-sellers needing to cover their positions when they were caught on the wrong side of the trend.

The next day's steep losses came as more of a direct response to those inflation numbers.

Which brings us to Monday.

The big lift in US stock markets yesterday was partly fuelled by expectation-beating earnings results from Bank of America Corp (NYSE: BAC).

A 13% year-on-year lift in credit card spending at the bank, coupled with falling delinquencies, showed US consumers remained resilient in the face of rising rates and high inflation.

Bank of America, with a market cap of some US$270 billion (AU$428 billion), closed up 6% on the results, helping drive the US stock market to another big day of gains.

The US stock market also got a boost from the United Kingdom. Investors were clearly pleased that many of the dramatic economic policies proposed by prime minister Liz Truss have been rolled back.

Topping it off, the recent big price swings also have analysts pondering whether markets are signalling that a bottom is forming.

Here's what the experts are saying

Commenting on the big moves in the US stock market, Phil Blancato, CEO of Ladenburg Thalmann Asset Management, said (courtesy of Reuters):

The information coming out of the banks are much better than anticipated. Even though there was a drop in earnings they're making significant income on their cash. So this recession is not a consumer-based recession. It's not a bank-based recession if you can even call it one. It's simply a cyclical slowdown.

Those are the best because they generally take around 10 months to recover which is right where we are. Inflation is not slowing the economy down. If we get any kind of recession it's mild. For that reason, when you look at stocks trading now below their P/E [price to earnings] averages, stocks are fairly valued again and offer a good opportunity.

Siddharth Singhai, chief investment officer at Ironhold Capital, didn't share that bullish sentiment on the US stock market.

"This seems to be a faux rally fuelled by lower inflation expectations, I don't think the rally makes sense. Interest rate hikes are not getting discounted by the market," he said.

Peter Tuz, president of Chase Investment Counsel, added (quoted by Reuters):

I was thinking that the bank earnings, especially Bank of America, was really pretty optimistic, and that coupled with the abandonment of restrictive policies in England just seemed to be the fuel that got the market going this morning.

There were some pretty rough days last week… The choppiness and volatility that we are seeing is part of the bottoming process. The fourth quarter generally is pretty good for markets historically.

If the US stock market, and by extension the ASX 200, is indeed in the process of forming a bottom, investors can expect more volatility during the rebound.

As with combatting motion sickness on a boat, the best bet is to keep your eyes fixed on the horizon and not fret about the daily ups and downs.