Dubai: Friday’s 300 points recovery in the Dow index may prove to be a dead cat bounce — a term often used to describe a temporary recovery in share prices after a substantial fall — analysts warn.

On Friday, the Dow Jones Industrial Average rose 1.38 per cent to 24,190.90 after hitting an intra-day low of 23,360.29 in another volatile session.

Last week, the Dow officially entered a correction phase, after the index fell more than 10 per cent from its all-time high seen on January 26. The index fell nearly 1,600 points last Monday, registering its single biggest daily fall in history, indicating the level of volatility.

“I think there will be more sell-off, we are not done yet. There will be a better entry point. We are in for a choppy and a volatile few weeks. We are more than happy that there is a healthy correction and we welcome another 10 per cent fall in markets, and that would be a buying opportunity,” Naeem Aslam, chief market analyst with Think Markets told Gulf News.

The index along with its peers in developed and emerging markets have been on a declining mode since early February on expectations that higher inflation may trigger faster than expected rise in interest rates in the United States, thereby supporting bond yields, and dimming appeal for equities.

Fund managers have been waiting to get back in the market anticipating more volatility ahead, despite a 2 per cent fall in the Dow index since January 1.

“While a deeper correction can materialise for any of a myriad reasons, we believe that the key for now is to stay focused on the medium term fundamentals, which remain positive, and argue that the pullbacks remain buying opportunities for underinvested investors,” Maximilian Kunkel, ultra-high net worth strategist at UBS, told Gulf News.

US tax cuts

The fundamentals are still positive. The International Monetary Fund last month revised its forecast for world economic growth in 2018, and 2019, saying that sweeping US tax cuts will boost investments in the US. The IMF forecast global growth of 3.9 per cent for this and next year, a 0.2 percentage point increase from its October estimates. According to UBS, about 80 per cent of the companies have published their results and are on track for a 13-15 per cent earnings growth and 7 per cent revenue growth. The companies have given higher guidance in 2018 after taking a lower tax rate into consideration.

“While volatility may persist in the very near term, we remain confident that the bull market remains intact. We may have moved from being “overdue” for a pullback, to approaching “overdone,” with this latest technical-driven sell-off,” Kunkel said.

Factbox: Bitcoin

Bitcoin prices rose to $8,320 (Dh30,534) from a low of $6,000 earlier last week. The price of the cryptocurrency has been falling from a record high of more than $19,000 due to expectations of more regulations from governments.

“Most traders are now bearish, and any small fall would trigger more selling.

However, we saw fresh buying at the support level of $6,000. The immediate barrier is 9,000 and a break over may take us to $12,000,” said an analyst who did not wish to be named.

Finance ministers and government officials are expected to discuss the future of cryptocurrencies at the G20 meeting to be held in March.