Markets recover with tech stock gains and Japanese equity rally, easing recession fears for investors
Stocks surged on Tuesday, recovering from the previous three days of losses as investors temporarily set aside recession fears and Japanese equities rallied, as reported by CNBC.
The Dow Jones Industrial Average rose by 294.39 points, or 0.76 percent, closing at 38,997.66. The S&P 500 increased by 1.04 percent to 5,240.03, and the Nasdaq Composite, which is tech-heavy, gained 1.03 percent to finish at 16,366.85. This marked the end of a three-day losing streak for the major averages.
All 11 sectors of the S&P 500 were positive for the day. Notably, several megacap tech stocks rebounded after a sharp pullback on Monday. Nvidia saw a 3.8 percent increase, while Meta Platforms advanced by 3.9 percent.
The positive sentiment was bolstered by a significant rebound in Japanese stocks. The Nikkei 225 had its best day since October 2008, soaring by 10.2 percent. This surge followed its worst session since 1987 the previous day, when it lost 12.4 percent.
Investment strategist Ross Mayfield from Baird commented on the situation, indicating that volatility is likely to remain high in the near term due to the unwinding of the yen carry trade.
He stated, “I wouldn’t be surprised if there were some more pressure in the coming weeks, but I do think that the growth scare is overdone.”
Mayfield also noted that the labour market remains relatively healthy despite some cooling, and other economic indicators still appear robust. He added, “While I think the market volatility could continue, I’m less worried about the underlying fundamentals.”
Monday's sharp sell-off was driven by concerns over the economy. The Dow had dropped by 1,033.99 points, or 2.6 percent, while the S&P 500 fell by 3 percent, marking their worst sessions since September 2022. The Nasdaq Composite decreased by 3.4 percent.
A significant factor contributing to the volatility was the unwinding of the yen carry trade. Last week, the Bank of Japan raised interest rates, leading to an increase in the yen's value. This impacted traders who borrowed in the cheaper currency to invest in other global assets.
However, on Tuesday, the yen retreated after sharp spikes, which helped ease some concerns over the carry trade.
