Monday was a very bad day for stocks, especially in Japan. But traders appear to be able to turn things around quickly, recouping much of Tuesday’s losses.
Futures for the three major U.S. indexes surged after their worst day in more than a year. The Dow Jones Industrial Average added 274 points, or 0.7%, in premarket trading. Futures for the S&P 500 gained 0.9%, while contracts linked to the tech-heavy Nasdaq Composite rose 1.1%. All three indexes fell about 3% on Monday.
In Tokyo, the Nikkei index rose 10% on Tuesday after falling more than 12% on Monday, the worst day since “Black Monday” in 1987.
There’s a lot behind these dramatic moves: fears of a U.S. recession, worries that artificial intelligence is being overhyped for tech stocks, concerns that it’s too late for Federal Reserve rate cuts to help corporate profits. Japan in particular has been burdened by the unwinding of the carry trade, where people borrow in yen to invest in higher-yielding assets elsewhere. At the same time, the S&P is still up 15% over the past 12 months, and corrections are normal after long periods of gains.
“Investors should not assume that this relative calm means that markets are behaving rationally again,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown. “The good news for long-term investors is that no single piece of the puzzle justifies such a dramatic shift in sentiment, this seems more about a perfect storm of factors. Calmer waters should prevail.”
Bond yields rose slightly. The yield on the benchmark 10-year U.S. Treasury was 3.872%, while the yield on the 2-year note was 4.002%.
