(Bloomberg) -- Buyers waded into the stock market on Tuesday following a three-day rout fueled by fears of a US economic slowdown and extreme tech-sector valuations.
The S&P 500 Index and technology-heavy Nasdaq 100 Index each gained 1%. Traders appeared to be less on edge about the prospect of further turbulence, as the VIX Index tumbled after reaching the highest since 2020 on Monday.
The moves come after the S&P 500 shed 6% across the past three sessions. The turmoil was sparked by data showing a rise in US unemployment, causing investors to worry the Federal Reserve isn’t moving quickly enough to cut interest rates to stave off an economic slowdown.
“It seems like a typical reflexive bounce after such a sharp decline,” said Kevin Gordon, senior investment strategist at Charles Schwab & Co. The rebound in cyclicals like financials and industrials indicated investors aren’t buying into the idea that recent declines were spurred by recession fears, he said.
“That isn’t to say we’re out of the woods with the recent correction,” he said. Any weakness in labor-market data later this week “has the power to upend things again, but folks definitely threw the baby out with the bath water yesterday morning,” he said.
Hedge funds stepped in to buy the big dip in technology shares after the recent rout, according to Goldman Sachs Group Inc.’s prime brokerage data. JPMorgan Chase & Co.’s quantitative and derivatives strategists seperately said they saw $14 billion of institutional net buying during market hours on Monday.
Among individual stocks, Nvidia Corp. rose 3.8%, while other chip stocks also gained. Palantir Technologies Inc. rallied after the data-analysis software company raised full-year forecasts, citing demand for artificial intelligence software. Cyber security firm Crowdstrike Holdings Inc. was lifted by Piper Sandler advising clients to use beaten-down valuations to buy the shares. Uber Technologies Inc. advanced after an earnings beat.
A rush of Wall Street strategists have told clients not to fret over the recent pullback. Bank of America Corp.’s Savita Subramanian said drawdowns of 5% or more have occured three times per year on average since the 1930s and 10% corrections once annually, adding that a “full-fledged bear market is unlikely.”
At Goldman, strategists led by David Kostin said buying US stocks after a slump of the scale witnessed over the past month has tended to be profitable, based on analysis of four decades of data. Since 1980, the S&P 500 has generated a median return of 6% in the three months that followed a 5% decline from a recent high.
Other market players including Jonestrading’s Mike O’Rourke downplayed the setback, telling clients in a note that “a 10% or more correction is absolutely appropriate amid such market strength.”
Concerns of an abrupt downturn were somewhat allayed by numbers Monday showing the US services sector expanded in July after the worst contraction in four years a month earlier. Economic data releases over the coming weeks will be key to gauging the Fed’s next move and the direction of stocks.
“Taking a contrarian approach around these big moves is not a bad approach for active manager and investors,” said Ben Kirby, co-head of investments at Thornburg Investment Management.
Sectors to Watch
- Technology high-flyers rebounded following a three-day rout
- Machinery stocks outperform after Caterpillar said its annual profit will be higher than previously expected
- Ride-hailing companies Uber and Lyft stocks jump after the former reported strong earnings results
- Canadian stocks tumbled at the open, then pared those losses, as traders caught up after the Toronto Stock Exchange and other venues were closed for a public holiday during Monday’s global selloff
Markets at a Glance
- S&P 500 Index rose 1%
- Dow Jones Industrial Average rose 0.8%
- Nasdaq Composite Index rose 1%
- Nasdaq 100 Index rose 1%
- Russell 2000 Index rose 1.2%
- 10-year Treasury yield rose 10 basis points
- Cboe Volatility Index fell 10.77 points
- Bloomberg Dollar Index rose 0.3%
- West Texas Intermediate crude rose 0.1% to $73 a barrel
- Euro fell 0.2%
Here Are the Most Notable Movers
- Uber shares rise 11% after the company reported better-than-expected orders in the second quarter, underscoring the continued strength in demand for rideshare and delivery services.
- Lucid shares advance 3% after after the EV startup announced a commitment of up to $1.5 billion from one of its biggest investors — an affiliate of Saudi Arabia’s Public Investment fund.
- ZoomInfo Technologies drops 18% after the infrastructure-software company undershot earnings expectations.
- Palantir Technologies’ stock jumps 10% after the company raised its annual outlook, citing continuing demand for its artificial intelligence software.
- Caterpillar shares gain 3% after the heavy machinery producer reported second-quarter adjusted earnings per share that came ahead of estimates.
- Celsius Holdings shares rise 2.4% after the energy-drink maker reported second-quarter revenue and earnings per share that topped Wall Street expectations.
- Vimeo shares soar 23% after the video software company forecast revenue for the full year above the average analyst estimate and reported second-quarter revenue that beat forecasts.
Notes From the Sell-Side
- CrowdStrike rises 4.3% as Piper Sandler raised the recommendation on the cyber security company to overweight from neutral, saying investors should “opportunistically build positions at current levels.”
- Amazon is removed as top pick at Morgan Stanley, with the bank citing additional merchandise margin pressure and slower cost to serve improvements. Shares close little changed.
- Alphabet slips following Monday’s ruling by a US judge that Google illegally monopolized the search market through exclusive deals. Analysts now say that Alphabet will appeal the verdict and the process will take time to resolve.
- Chegg shares slide 22% after the education technology company’s forecast for third-quarter adjusted Ebitda missed consensus estimates. Piper Sandler said this was a disappointing quarter from the company.
- Hims & Hers Health shares 5.4% drop even after the firm boosts full-year adjusted Ebitda guidance. Citi described the performance as “impressive,” but noted that the debate on GLP-1 weight loss drugs was far from over.
- Carlyle Group is downgraded to neutral from overweight at JPMorgan, which says that more muted buyout performance will weigh on the company’s growth. The stock falls 3.8%.
Related Market News
- Taking Stock: Fighting the tape is never a good idea, and the intensity of the stock market selloff yesterday indicates traders have already hit the panic button.
- European Stocks: European stocks fell Tuesday, suggesting any rebound from this month’s selloff remained fragile as investors worried about the outlook for US economic growth.
- Inside Asia: Most Asian currencies weakened, paring some of Monday’s gains, after the dollar bounced back. The Philippine peso outperformed amid hawkish signals from the central bank.
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Geoffrey Morgan, Esha Dey, Sagarika Jaisinghani and Natalia Kniazhevich.
©2024 Bloomberg L.P.
