S&P 500 futures bounce after index posts worst day in nearly two ...
Traders work on the floor of the New York Stock Exchange (NYSE) on July 22, 2024 in New York City.
Spencer Platt | Getty Images
S&P 500 futures bounced in overnight trading after the broad index notched its worst day in nearly two years as global markets sold off.
Futures tied to the S&P 500 rose 0.9%, while Nasdaq 100 futures rallied 1.3%. Futures connected to the Dow Jones Industrial Average jumped 222 points, or about 0.6%.
The overnight moves follow a sharp sell-off during regular trading. The 30-stock Dow dropped 1,033.99 points, or 2.6%, while the S&P 500 slid 3%. Both indexes notched their worst sessions since September 2022. The Nasdaq Composite shed 3.43%, tumbling deeper into a correction.
A weak July jobs report Friday sparked concerns that the Federal Reserve is behind the curve on rates cuts, fueling fears of a recession.
These fears spilled over into global markets, with Japan's Nikkei 225 index registering its worst daily decline since Black Monday in 1987. U.S. Treasury yields declined as investors flocked to safe-haven bonds. The Cboe Volatility Index at one point surged to 65, its highest level since 2020.
The Dow, S&P 500 and Nasdaq are down 5%, 6% and 8% respectively in three days, their worst 3-day performance in more than two years.
A major unwind in the yen "carry trade" also contributed to the volatility. The Bank of Japan last week raised interest rates, contributing to a rise in the yen. That's affected the practice of traders borrowing in the cheaper currency to purchase other global assets.
"After such a strong rally since last fall, valuations, sentiment, and investor positioning had become stretched," said Quincy Krosby, LPL Financial's chief global strategist. "What markets are experiencing today is an unwinding of that bullish positioning, which is particularly evident in the yen and the so-called carry trade."
Artificial intelligence stocks bore the brunt of Monday's spiral, with Nvidia and Apple dropping about 6% and nearly 5%, respectively. Both stocks bounced in after-hours trading. The VanEck Semiconductor ETF (SMH) fell 2% while megacaps Alphabet, Amazon and Tesla dropped more than 4%. All three stocks rose about 1% in overnight trading. Traders have been worried as of late as to when megacap tech companies' investments in AI will pay off.
Many investors have come to view Monday's sell-off as long overdue in a market that's reached high valuations and new records, with some cautioning that the pain may have more room to run.
"It's too early to say the low is in," wrote Keith Lerner, Truist's co-chief investment officer. "There has been damage done, and the repair process will likely take time. However, the risk/reward appears to be gradually improving as the market's bar for positive surprises resets lower."
In other news, Palantir Technologies surged 12% in after-hours trading on strong quarterly results and a guidance lift, while Lucid Group rallied nearly 6% on better-than-expected revenue in the second quarter.
South Korean and Japanese stocks opened sharply higher in Tuesday morning trade, rebounding from Monday's sell-off.
Japan's Nikkei 225 and Topix both spiked as much as 9%, before paring gains to trade about 7% higher. The Japanese yen weakened to about 146 against the U.S. dollar.
South Korea's Kospi jumped more than 4% while the Kosdaq was about 5% higher.
— Christine Wang
Stocks will once again find their footing and recover from a global market sell-off as recession worries abates and the unwinding of the yen carry trade settles, according to BlackRock.
"We think risk assets can recover as recession fears ease and the rapid unwinding of carry trades stabilizes," the firm's Investment Institute wrote said. "We keep our overweight to U.S. equities, driven by the AI mega force, and see the selloff presenting buying opportunities.
"We think growth will be supportive of risk assets and believe markets are pricing in too many Fed rate cuts," the note added. The firm also posits that the recent weaker-than-expected jobs report that preceded the Friday market sell-off more closely resembles a slowdown in hiring as opposed to a recession.
BlackRock added that the main driving force behind the rise in the unemployment is an uptick in labor supply due to immigration as opposed to layoffs, which is a key difference compared to previous recessions.
— Brian Evans
The Federal Reserve should come out and signal to markets that it is aware of the issues facing the economy even if it doesn't do an emergency rate cut, according to Rick Rieder, chief investment officer of global fixed income at BlackRock.
Rieder pointed out that traders are already pricing in aggressive moves from the Federal Reserve and said that the central bank should change its public communication to show that it knows the labor market has weakened and that rate cuts have become increasingly likely.
"Do they have to panic and do inter-meeting? No, but I think ... evolving that communication would be helpful," Rieder said on "Closing Bell."
— Jesse Pound
Technology stocks that sold off during Monday's session bounced in overnight trading.
Nvidia added nearly 3%, following a 6.4% loss during regular trading. Megacap technology stocks Alphabet, Microsoft, Meta Platforms and Amazon added more than 1% each. Apple also added nearly 1% after dropping about 4.8% during regular trading.
The VanEck Semiconductor ETF rose more than 2%.
— Samantha Subin
San Francisco Federal Reserve President Mary Daly indicated Monday that interest rate reductions are coming later this year, though she did not provide specifics.
"Policy adjustments will be necessary in the coming quarter. How much that needs to be done and when it needs to take place, I think that's going to depend a lot on the incoming information," the central bank official said during a forum in Hawaii.
Daly noted that she still thinks the economy is growing, though the labor market is weakening and less restrictive policy will be appropriate.
"I see an economy that has momentum, and we want to make sure we keep that," she said.
—Jeff Cox
