Stocks on Wall Street are climbing higher again, as fears that rattled global markets last week begin to subside. The S&P 500 saw a 1.3% rise in early trading, poised for its second consecutive day of at least 1% gains after enduring a sharp three-day decline that wiped out over 6% of its value. Meanwhile, the Dow Jones Industrial Average gained 251 points, or 0.6%, and the Nasdaq composite surged 1.9% by 9:35 a.m. Eastern time.
Several factors contributed to the recent market slide, including concerns originating from Japan, which now appear to be easing. Last week, the Bank of Japan raised its main interest rate slightly, a move that sent shockwaves through global markets. This decision disrupted a popular strategy among hedge funds and other investors who had been borrowing cheaply in Japanese yen to invest in other markets worldwide.
The rate hike caused the yen’s value to soar, triggering an exodus of investments by these funds and exacerbating market losses. This turmoil contributed to the Nikkei 225’s worst drop since the 1987 Black Monday crash.
In a speech to business leaders on the northern island of Hokkaido, Shinichi Uchida, deputy governor of the Bank of Japan, acknowledged the recent market instability, which was also influenced by worries about a slowing U.S. economy. Uchida reassured that Japan’s central bank is prepared to be patient, stating that it “will not raise its policy interest rate when financial and capital markets are unstable.” He also expressed confidence that the U.S. economy would achieve a “soft landing” and avoid a recession, despite fears that the Federal Reserve’s prolonged high-interest rates could dampen growth.
Wall Street Show Optimism Signs Despite Concerns
This reassurance from Japan provided a boost to markets that were jittery about potential further rate hikes. However, it also underscored lingering risks, suggesting that the unwinding of the popular “carry” trade could continue. John Lynch, chief investment officer for Comerica Wealth Management, noted that some hedge funds and investors may still be “offsides.”
Despite these concerns, signs of renewed optimism are emerging on Wall Street. A measure of how much professional investors are paying to hedge against future losses in the S&P 500 index has eased. Additionally, Treasury yields rose, indicating that investors feel less compelled to hold the safest assets.
The yield on the 10-year Treasury climbed to 3.93% from 3.90% late Tuesday. It had briefly dipped below 3.70% on Monday when market fears were peaking, with speculation that the Federal Reserve might need to call an emergency meeting to lower interest rates quickly.
Wall Street currently expects the Fed to reduce its main interest rate at its next scheduled meeting, with predictions ranging from a quarter-point cut to a more substantial half-point reduction.
In the meantime, earnings reports from major U.S. companies continue to pour in, with the S&P 500’s growth potentially marking the best since 2021, according to FactSet.
CVS Health exceeded profit expectations for the latest quarter but missed on revenue, leading to a 1.3% drop in its stock after it also reduced its profit forecast for the full year.
Airbnb plummeted 14.3% after its second-quarter profit fell short of analysts’ expectations, and the company indicated signs of slowing demand in the U.S.
Super Micro Computers, another notable decliner, dropped 14.4% after reporting weaker-than-expected results. Despite being one of the year’s biggest winners due to excitement over artificial intelligence technology, the stock’s earlier 300% surge has been met with skepticism by critics who argue that the AI frenzy has driven prices too high.
Criticism has particularly focused on stocks like Nvidia and Apple, part of the “Magnificent Seven” that have largely driven the S&P 500’s record-setting performance this year, overshadowing weaknesses in other market sectors struggling under high-interest rates.
Recent underwhelming earnings reports, starting with Tesla and Alphabet, have contributed to pessimism and dragged down Big Tech stocks. Nvidia, for instance, dropped nearly 19% from the beginning of July through Monday. However, it rebounded 3.7% on Wednesday, contributing significantly to the market’s upward momentum, alongside gains from Microsoft and Apple.
Meanwhile, international stock markets rallied across much of Europe and Asia as calm returned to global markets.
Featured Image: Freepik @ wirestock
