Stock markets appeared a little calmer on Wednesday after a robust rally in the US overnight, but investors remained cautious - far from sure whether the last few days of volatility was a minor blip in the market or an ongoing correction.
Some breathed a sigh of relief on Tuesday after Monday's 4.6% fall on the US Dow Jones Industrial Averge was followed by a 2.33% gain. The S&P 500 rallied 1.74% and the Nasdaq Composite added 2.13%.
Investors remain cautious
Signs that investors remained troubled by the recent sell-off remained, however. Asian markets were mixed - Tokyo's Nikkei 225 rose a tentative 0.16% after three days of heavy losses, but Shanghai's Composite index fell 1.81% while Seoul's Kospi Composite shed 2.31% and the Hang Seng in Hong Kong lost 0.89%.
And while Europe's markets climbed, US futures indexes indicated opening losses when Wall Street opens.
Meanwhile, Wall Street's 'fear gauge' - the Vix index - which measures implied volatility on the S&P 500, was up 3.5% to 31.03. The Vix eased on Tuesday after its biggest one-day spike on record on Monday.
All of this left market participants wondering if a correction remained a possibility, or whether the period of turbulence was a small reversal in the market's overwhelmingly upward trend.
A correction is when an asset, security or other indicator falls more than 10% from its most recent cyclical peak. After Tuesday's gains on the S&P 500, the index is down 6.2% from its recent peak: at its worst on Monday, the losses amounted to 8.2%.
"Clearly there’s been a psychological hit to markets however overdue the correction was," said Anthony Rayner, asset manager at Miton.
"The low volatility environment has come to an end with somewhat of a bang. The Vix, a market estimate of future volatility, saw its biggest daily spike on record on Monday. Furthermore, there have been periods over the last few days where equities, government bonds and gold have sold off simultaneously, signifying across the board liquidation."
Correction to play out
But Sven Balzer, head of investment strategy at Coutts, was optimistic the correction would play out, as most do, with a return to the general equity market uptrend.
He said: "This week’s stock market falls show a much-needed market correction after a long period of strong performance, and little more.
"This is a short-term correction driven by technical factors rather than concerns about the underlying economic picture or corporate health. While this can be unnerving for investors, we see a robust economic and corporate environment that should continue to support equities."
Abi Oladimeji, chief investment officer at Thomas Miller Investment, added: "This is simply a correction of excess investor exuberance.
"Before long, once the ‘weak hands’ have been shaken off, the underlying positive trend is likely to resume, hopefully, at a more sustainable pace if we are to avoid a more protracted risk-off event in the not-too-distant future."