Some Calm Returns – US Market Wrap

A renewed wave of dip buying fuelled a stock rally following a roughly $6.5 trillion selloff that shook markets around the world.

All major groups in the S&P 500 rose, with the index closing 1% higher. Following a spike in volatility to begin the week, dip buyers emerged to scoop up bargains left over from a plunge that sent major benchmarks into technically “oversold” territory. Just a day later, Wall Street’s “fear gauge” – the VIX – was on track for its biggest drop since 1990.

After a pullback fuelled by weak economic data, disappointing tech results, stretched positioning, and poor seasonal trends, global markets regained some calm. According to Goldman Sachs, buying US stocks after a large-scale decline in the previous month has typically been profitable. Since 1980, the US benchmark has returned a median of 6% in the three months following a 5% drop from its previous high.

Treasuries fell as global demand for haven assets waned, with rising yields helping to smooth a $58 billion auction of three-year notes in afternoon trading. Traders are also lowering expectations for significant Federal Reserve rate cuts this year. Swaps indicate around 105 basis points of easing, compared to up to 150 basis points on Monday.

The S&P 500 increased to around 5,240. Nvidia increased by 3.8%, which led to gains among chipmakers. An index of the “Magnificent Seven” climbed 1.2%. The Russell 2000 index of small businesses rose 1.2%. Walt Disney rallied around plans to raise the prices of its streaming services. Caterpillar rose on a bullish forecast.