US and European stock markets rebounded Monday, but the danger of ever more volatility kept investors' nerves under strain.
Wild price swings accompanied last week's heavy stock market losses, the worst weekly slump in years for indices in some countries, making it hard for investors to read the market with any degree of confidence from one moment to the next.
"Investors are breathing a sigh of relief after the torrid times last week," said Rebecca O'Keeffe, head of investment at Interactive Investor.
"Buying the dip (bargain hunting) has been a very difficult call in recent days, with every attempt at engagement punished in subsequent market moves, so investors will be hoping that this is a genuine buying opportunity."
But such hopes may well be premature, some analysts cautioned.
- 'Won't last' -
US investors appeared to be trying to turn the page, with the market enjoying a relatively calm session and experiencing none of the turbulence of the last week. The broad S&P 500 index ended up 1.4 percent.
Equity markets in London, Paris and Frankfurt all won at least one percent.
"The market is returning to more fundamental considerations," said William Lynch, director of investments at Hinsdale Associates. "Business results are good."
Yet brokers Charles Schwab said Wall Street remained "skittish" and Capital Economics said the valuation of American stocks "appears stretched by most measures" even after last week's brutal correction.
Michael Hewson at CMC Markets, meanwhile, said there is "a whole new breed of equity investors and traders who have never experienced the type of volatility that we've gone through over the last few days", making their "untried reaction" another factor of market uncertainty.
At the heart of market worries lies the rapidly rising likelihood of monetary policy tightening by key central banks, notably the US Federal Reserve, but also the European Central Bank and the Bank of England, as inflationary pressures finally start to build up.
Analysts say the US consumer inflation report for January due for release Wednesday, coupled with fresh retail sales data, may well spark another rollercoaster ride for equities if they confirm inflationary fears.
A weak reading, however, may give US monetary policymakers a reason to hold off on raising rates at a faster clip.
- Yield watching -
The sudden market fragility comes after a stellar 2017 and a January that saw record and multi-year highs for stock markets around the world, after years of post-financial crisis stimulus.
But as central banks pull back, there is now concern that big spending plans by the US government may boost the budget deficit, and juice the economy, making the case for higher rates more pressing still.
Rising yields on government bonds are an indication that such a scenario is seen as likely in the markets, with investors demanding higher interest rates if they are to accept future inflation eating into their returns.
"Should yields march further higher -- which is quite possible with the upcoming US inflation and retail sales data to look forward to on Wednesday -- then there is a possibility the equity markets could be in for another volatile week," predicted Fawad Razaqzada at Forex.com.
- Key figures around 2200 GMT -
New York - DOW: UP 1.7 percent at 24,601.27 (close)
New York - S&P 500: UP 1.4 percent at 2,656.00 (close)
New York - Nasdaq: UP 1.6 percent at 6,981.96 (close)
London - FTSE 100: UP 1.2 percent at 7,177.06 (close)
Frankfurt - DAX 30: UP 1.5 percent at 12,282.77 (close)
Paris - CAC 40: UP 1.2 percent at 5,140.06 (close)
EURO STOXX 50: UP 1.3 percent at 3,368.25
Hong Kong - Hang Seng: DOWN 0.2 percent at 29,459.63 (close)
Shanghai - Composite: UP 0.8 percent at 3,154.13 (close)
Tokyo - Nikkei 225: Closed for a public holiday
Euro/dollar: UP at $1.2291 from $1.2252 at 2200 GMT on Friday
Pound/dollar: UP at $1.3837 from $1.3827
Dollar/yen: DOWN at 108.64 yen from 108.80 yen
Oil - Brent North Sea: DOWN 20 cents at $62.59 per barrel
Oil - West Texas Intermediate: UP 9 cents at $59.29 per barrel