Wall Street rebounds as fears of US recession fade

Wall Street rebounded yesterday after a global market collapse triggered by the possibility of a US recession.

Markets rose as investor panic over a slowdown in the world’s largest economy faded, but there were warnings there could be more to come.

Weaker-than-expected jobs data and concerns that US tech giants are overvalued sent stocks down around the world on Monday.

Traders have now priced in 1.25 basis points of rate cuts from the US Federal Reserve for the rest of 2024 after the central bank was accused of holding borrowing costs low for too long.

And Wall Street’s “fear gauge” was headed for its second-biggest drop of all time last night after hitting pandemic-era highs on Monday.

But investors were warned there could be more pain to come as the stock market correction “has not gone far enough.”

New York’s major indexes rebounded on Tuesday: the Dow Jones Industrial Average rose 0.8 percent after falling 2.6 percent the day before.

The S&P 500 gained 1% after closing down 3.4% on Monday and the tech-heavy Nasdaq Composite rose 1% after falling 2.9% the day before.

In the City, the FTSE 100 rose 0.2 percent to close up 0.2 percent at 8,026.69, after falling for the previous four sessions.

The blue chip index was less dynamic due to the weighting of precious metals mining companies that were affected by a drop in the price of gold.

Endeavour Mining and Fresnillo were among the biggest losers, down 4 percent and 3.1 percent respectively.

Mohit Kumar, an analyst at brokerage firm Jefferies, said: “We don’t think the US economy – or the European economy – is heading for a hard landing.”

Tokyo’s Nikkei 225 rebounded, up 10 percent after falling 12 percent the previous day, its biggest drop in 30 years.

Deutsche Bank analyst Jim Reid said: “There was a dramatic turnaround in Asia on Tuesday.”

In Japan, the dismantling of the “carry trade” – in which traders borrowed money from countries with low interest rates to finance investments – accelerated the stock market’s fall.

Japanese Prime Minister Fumio Kishida called for calm following Monday’s sharp drop.

This came after Japanese officials held an emergency meeting to discuss the global sell-off.

The return of volatility follows an unusually long period of market calm, with the S&P 500 going 356 sessions without a downward move of 2 percent or more, the longest such streak since 2007.

Matt Britzman, an analyst at Hargreaves Lansdown, said: “What a difference a day makes.”

But he added: “Investors should not assume that this relative calm means markets have returned to rational behaviour. The volatility index remains at elevated levels, suggesting further turbulence lies ahead.”