Stocks recovered a good chunk of the last week’s losses in Tuesday trading, accentuated by Monday’s 3% decline in the S&P 500, as investors look to bandage this chilly August in the face of global ricnbcsk, angst and central bank uncertainty.
The Dow's more than 1,000-point dip Monday was its worst since 2022.
The Dow Jones Industrial Average rose about 1.9%, or 790 points, as of early afternoon Tuesday and the S&P 500 and the tech-heavy Nasdaq Composite gained about 2.4% apiece, with beleaguered big technology stocks like Nvidia and Meta’s more than 5% respective gains leading the charge.
The S&P is on pace for its largest single-day gain since Nov. 2022, and the Dow is on track for its best day since June 2023.
The bounceback follows Monday’s brutal selloff, which brought the worst single-day drops for the S&P and Dow since September 2022.
The indexes have fallen significantly this month as Friday’s subpar labor market report, fallout from Japan’s rare move to hike interest rates and recession concerns globally came to a head to inspire a major flight from risk for investors.
The Dow and S&P are still down about 3.5% apiece in August and the Nasdaq nearly 6%.
The bond market slumped lightly as investors regained their risk appetite, with 2-year and 10-year U.S. Treasury note yields gaining about 10 basis points apiece—higher yields mean a decline in bond values—though yields are still down significantly compared to last week.
In perhaps the most encouraging news for investors, Wall Street’s fear gauge, the Chicago Board Options Exchange's CBOE Volatility Index (VIX), came down by almost 40% to 24. That’s more than 60% lower than Monday’s peak of 65.73, indicating traders expect calmer waters ahead. The VIX, which tracks options-implied expected volatility for the S&P over the next 30 days, is still about 30% higher than it was from January to July, during the stock market boom.
“Investor concerns about a recession are overdone,” Solita Marcelli, UBS Wealth Management’s chief investment officer Americas, declared in a morning note to clients.
Earlier Tuesday, Japan’s Nikkei index staged a 10% rally, paring much of the losses from Monday’s 12% crash, while other overseas indexes like Hong Kong’s Hang Seng and the U.K.’s FTSE 100 declined less than 1%. The U.S.’ monthly jobs report Friday revealed far weaker employment growth than economists forecasted and an unexpected jump in the unemployment rate to a 33-month high of 4.3%, causing elevated concerns about economic growth and spurring stock losses as the Federal Reserve has yet to indicate it intends to parachute in with a flurry of growth-stimulating interest rate cuts. Simultaneously, Japan’s central bank has taken its most hawkish tone in decades, causing the unraveling of the so-called carry trades in which traders borrowed the Japanese yen at near-zero rates to buy riskier assets overseas, such as American stocks, thus lifting the latter’s prices.
American stocks are still up solidly over a longer timeframe, with the S&P returning 10% year-to-date, 18% over the last 12 months and 29% over the last two years.