Following last week's chaos, Wall Street recovers, as the Dow closes over 500 points higher
The Federal Reserve had raised interest rates rapidly to their current level of 5.25-5.5 percent to combat inflation, which peaked at 9 percent in June 2022. This move aimed to cool both lending activity and the economy.
On September 9, Wall Street's major indexes saw gains of over 1 percent as investors took advantage of the recent dip in the market.
The rally followed a significant drop in risk assets last week, triggered by weaker-than-expected job numbers and disappointing manufacturing data.
By the end of the trading day on Monday, the Dow Jones Industrial Average had climbed 484.18 points, or 1.20 percent, to 40,829.59. The S&P 500 increased by 62.63 points, or 1.16 percent, reaching 5,471.05, and the Nasdaq Composite rose 193.77 points, or 1.16 percent, to 16,884.60.
This rebound occurred after the Dow experienced a loss of over 1,200 points the previous week, and the Nasdaq saw its largest weekly drop since January 2022.
The selloff was fueled by growing concerns over the U.S. economy, exacerbated by weak manufacturing reports, a record rise in layoffs for August, and a disappointing jobs report, all of which heightened fears of a potential economic slowdown.
Kristina Hooper, chief global market strategist at Invesco, commented, “Investors had a little time over the weekend to think about things. Clearly there was an overreaction to economic data last week.
It raised overblown fears of a potential recession.” She added, “A pause gives you the opportunity to be more rational.”
Major banks have varied predictions for the likelihood of a U.S. recession, estimating chances at 20 percent (Goldman Sachs), 25 percent (UBS Global Wealth Management), and 35 percent (JP Morgan Chase).
On Monday, Morgan Stanley also reduced its oil forecast, noting that traders seem to be anticipating a demand slowdown similar to a mild recession.
Market strategists suggested that Monday's stock purchases were indicative of classic dip-buying as investors sought bargains. Phil Blancato, chief market strategist at Osaic Wealth, noted that investors were targeting “high quality stocks that are cheaper,” citing Nvidia as an example, which saw a 3.5 percent increase on Monday after falling 15.3 percent the previous week.
Investors are keenly awaiting Wednesday’s consumer price index (CPI) data for insights into inflation trends and potential Federal Reserve interest rate decisions.
The CME Fed Watch Tool indicates that investors are expecting a rate cut when Fed officials meet on September 18, with a 70 percent chance of a 0.25 percentage point cut and a 30 percent chance of a 0.5 percentage point reduction.
The Federal Reserve had raised interest rates rapidly to their current level of 5.25-5.5 percent to combat inflation, which peaked at 9 percent in June 2022. This move aimed to cool both lending activity and the economy.
Wednesday’s CPI report is anticipated to show a slight decrease in the annual inflation rate to 2.6 percent for August, with the monthly rate expected to remain at 0.2 percent.
Another significant event for investors is the September 10 presidential candidate debate between former President Donald Trump and Vice President Kamala Harris.
ING analyst Chris Turner described the debate as “potentially one of the biggest market movers this week,” noting that Joe Biden’s underwhelming performance in the previous debate in June had led to a poll swing towards Trump and a stronger dollar.
The 90-minute debate, hosted by ABC in Philadelphia, is expected to be closely watched. The Harris campaign recently launched a new webpage, “A New Way Forward,” outlining her policy positions on crucial topics like border policies and the economy.
A recent poll indicated that voters are uncertain about Harris’s stance on key issues ahead of the debate.
