S&P/ASX 200 Index (ASX: XJO) shares are off to a roaring start today.
In early morning trade, the benchmark index is up 1.4%.
ASX 200 shares have been unusually volatile over the past few days, closing 1.4% lower yesterday after finishing 1.8% higher on Friday.
So, what's going on?
Why are ASX 200 shares rocketing today?
ASX 200 shares are again closely following the action taking place in US markets.
Yesterday, overnight Aussie time, saw the S&P 500 Index (SP: .INX) finish up 2.7%.
Investor enthusiasm looks to have been sparked on a number of fronts.
First, Bank of America Corp (NYSE: BAC) reported its results and earnings at the bank, with a market cap north of US$270 billion, came in ahead of consensus expectations. Bank of America closed up 6% on the results and helped drive the broader bullish sentiment.
It also appears that the big swings we've seen on the S&P 500, mirrored here by ASX 200 shares, have some traders speculating that markets may be signalling the bottom is in.
And then there are the goings on in the United Kingdom, where a number of market-shaking policies put forward by newly minted prime minister Liz Truss have been axed.
What the experts are saying
Commenting on the surge in US markets, and by extension ASX 200 shares, Jason Paltrowitz, director of corporate services, OTC Markets Group, said (courtesy of Reuters):
It's a combination of factors. Obviously, the positive BofA earnings as well as others have caused positive movement – while EPS [earnings per share] growth is lower than previous quarters, it's better than expected. Additionally, Friday's sell off was about uncertainty and not wanting to hold positions over the weekend. The start of the week has that money back in the market.
Peter Tuz, president of Chase Investment Counsel, added:
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.
Chris Murphy, co-head of derivatives strategy at Susquehanna International Group, sounded a note of caution (quoted by Reuters).
"I think this is more a sign of more volatility to come," he said. "I don't think this is a sign of a bottom because we are not seeing real sustained long-term buyers come in… Most of the flow that we are seeing just today is people re-engaging hedges and shorts."
Time will tell whether the lift in US stocks and ASX 200 shares today is a bear market rally or a more sustainable leg up based on a bottom forming.
There are plenty more earnings results due from major US stocks over the coming two weeks. Whether share markets trend higher or lower over those weeks, I expect we're not through with the volatile swings quite yet.
