Stock Market Today: Why the Stock Market Is Rebounding; Dow, Nasdaq, S&P 500 Up; Japan's Nikkei Soars 10%; Palantir, Nvidia, Apple, More Movers; Recession Fears (2024)

What to Watch Today

In Tokyo, the benchmark Nikkei stock index closed 10% higher on Tuesday after falling more than 12% on Monday—its worst day since ‘Black Monday’ in 1987.

There’s a lot going on behind these dramatic moves—fears of a U.S. recession, worries that artificial intelligence may be overhyped for technology stocks, concern that it’s too late for Federal Reserve interest-rate cuts to help companies’ earnings.

Bond yields moved a little higher. The rate on the benchmark 10-year U.S. Treasury bond was at 3.872%, while the yield on the 2-year note was at 4.002%.

Bonds gave up gains Tuesday, suggesting a big pileup into the low-risk asset class has subsided as fears of a recession have eased.

The 2-year Treasury yield, or return, collapsed by about 20 basis points twice yesterday during intraday trading as markets saw some stomach-churning volatility. Bond returns fall when investors rush to buy them, driving up prices.

Things look different today, though. After ending Friday and Monday below the 4% mark, the 2-year yield was back up to 4.008%.

The push could be partly from the new estimate by Atlanta GDPNow model that expects the U.S. economy to grow by 2.9% in the third quarter as opposed to 2.5% earlier. That may instill some confidence the economy is nowhere near falling off a cliff.

This means the savage selloff in risk assets and rush into the relatively safer 2-year bonds yesterday could have been overdone. Investors had started pricing in massive interest-rate cuts of 175 basis points, which led to the 2-year yield—which captures short-term rate expectations—to fall strongly.

The gap between expectations and current effective fed-funds rate was “at multi-decade extremes that have only been hit a few times since the late 1980s,” wrote Bespoke Investment Group on Monday.

The Dow was up 565 points on Tuesday as the stock market finally calmed down from a recent bout of volatility.

Only six members of the Dow were down on the day with the blue-chip index up 1.5%. The S&P 500 was up 2%. The Nasdaq Composite was up 2.2%.

Fears about conflict in the Middle East, a soaring Japanese yen, Berkshire Hathaway's Apple stock selling, and signs of an a slowing economy mixed over the weekend and sparked a global selloff. The CBOE Volatility Index, or VIX, soared as high as 65.73.

But the market's fear gauge was back down to 25 on Tuesday. While any reading over 20 signals heightened volatility, it's 30 and above where things get concerning.

"The statistics from yesterday's selloff had the feel of the 'sell now ask questions later' kind of day where everything and anything is piling on to reasons for selling, with 90% of market volume to the downside," writes Quincy Krosby, chief global strategist at LPL Financial. "Today, the market by any metric is 'oversold' and due for a bounce. The lingering question now is whether the concerns that pushed the market into a cascade of selling are alleviated."