Agencies
Hopes for an economic soft landing are once again powering US stocks higher, as encouraging data relieve recession worries following a brutal sell-off earlier this month. The S&P has rebounded more than 6 percent since Aug 5, when a steep drop pushed the benchmark US index to its biggest three-day slide in over two years.
A rapid return to calm was also evident in the Cboe Volatility Index, or Wall Street’s “fear gauge,” which has retreated from last week’s four-year highs at a record pace. Driving the turnaround are this week’s reports on retail sales, inflation and producer prices, which helped allay worries over an economic slowdown sparked by weaker-than-expected employment data at the start of the month. The favorable data has bolstered the case for investors looking to hop back aboard many of the trades that have worked this year, from buying Big Tech stocks to a more recent bet on small and mid-cap names that accelerated in July.
“There was a real growth scare that had emerged,” said Mona Mahajan, senior investment strategist at Edward Jones.
“Since then, what we’ve seen is the economic data has actually come out in a much more positive light.”
Some of 2024’s biggest winners have staged strong rebounds since Aug. 5.
Chipmaker Nvidia has bounced more than 20 percent, while the Philadelphia SE Semiconductor index has gained more than 14 percent. Small-cap shares, which had been strong performers in July, have also recovered from recent lows, with the Russell 2000 up nearly 5 percent.
Meanwhile, traders are unwinding bets that the Federal Reserve will need to deliver jumbo-sized rate cuts in September to stave off a recession.
As of late Thursday, futures tied to the Fed funds rate showed traders pricing a 25 percent chance that the central bank will lower rates by 50 basis points in September, down from around 85 percent on Aug 5, CME FedWatch data showed.
The probability of a 25 basis point cut stood at 75 percent, in line with expectations that the Fed will kick off an easing cycle in September.
