Global Markets Rebound After Monday’s Steep Selloff
Stock markets around the world staged a comeback on Tuesday, recovering some ground after a brutal selloff on Monday that saw major indexes post their worst losses in over a year. The rebound comes as investors grapple with concerns about economic growth, monetary policy, and the state of the tech sector.
On Wall Street, the Dow Jones Industrial Average closed up 294 points or 0.8%, after surging more than 700 points earlier in the session. The S&P 500 and Nasdaq Composite both gained 1%. This partial recovery follows Monday’s rout that dragged the Dow down over 1,000 points and sent Japan’s Nikkei index crashing 12%.
“Volatility can cut both ways, and it’s not unlikely we get a massive rally that undoes a lot of the damage we’ve had in the last few days,” noted Ben Kirby, co-head of investments at Thornburg Investment Management. However, he cautioned that sustaining gains could prove challenging without positive catalysts.
The mood on Wall Street appeared to improve, with the CBOE Volatility Index (VIX), often called the “fear gauge,” falling to 26 from Monday’s spike above 65. CNN’s Fear & Greed Index, while still in “extreme fear” territory, edged up slightly.
Global Recovery
The rebound extended beyond U.S. shores. Japan’s Nikkei 225 index rebounded a staggering 10% on Tuesday, clawing back much of its historic losses from the previous day. Other Asian markets followed suit, with South Korea’s Kospi gaining 3.3% and Taiwan’s stock market rising 3.4%.
European markets also showed signs of recovery, though gains were more modest. The pan-European Stoxx 600 index closed slightly higher.
Factors Behind the Volatility
Several factors have contributed to the recent market turbulence:
- Economic Concerns: Friday’s weak U.S. jobs report sparked fears about the health of the world’s largest economy. The unemployment rate jumped to 4.3% in July, nearly a full percentage point higher than at the start of the year.
- Monetary Policy Uncertainty: Investors are closely watching the Federal Reserve for signs of potential interest rate cuts. However, Fed officials, including Chicago Fed President Austan Goolsbee, have pushed back against the idea of emergency rate cuts in response to market volatility.
- Tech Sector Scrutiny: Big Tech stocks, which have been market leaders, faced pressure after disappointing earnings and increased regulatory scrutiny. Google’s defeat in a U.S. antitrust case on Monday added to concerns about the sector’s outlook.
- Currency Movements: The rapid appreciation of the Japanese yen has forced many investors to unwind popular “carry trades,” contributing to market instability.
Looking Ahead
While Tuesday’s rebound offered some relief, market participants remained cautious. The VIX, despite retreating from Monday’s highs, still indicates elevated levels of expected market volatility.
“Our current correction is actually quite normal, especially during August, which historically is a volatile time for markets given lighter trading volumes and the summer doldrums,” noted Carol Schleif, BMO Family Office’s chief investment officer. “The underlying economy is still in solid shape.”
Investors will be closely watching Fed Chair Jerome Powell’s upcoming speech at the central bank’s annual Jackson Hole symposium on August 24th. Markets are hoping for a clearer roadmap on future interest rate decisions, especially given recent economic data showing slowing job and wage growth.
