(New York) Calm is returning to Wall Street, with U.S. stocks holding steady after the Japanese market soared earlier Tuesday to rebound from its worst loss since 1987.
The S&P 500 was up 0.2% in early trading and on track to snap a three-day losing streak. It had fallen just over 6% after several weaker-than-expected reports raised concerns about the Federal Reserve’s ability to rein in the U.S. economy too hard for too long with high interest rates to fight inflation.
The Dow was up 47 points, or 0.1%, as of 9:43 a.m. ET, and the NASDAQ composite was down 0.3%.
Better-than-expected profits at several major U.S. companies helped support the market. Kenvue, the company behind Tylenol and Band-Aids, jumped 13.5% after reporting higher-than-expected profit, helped in part by higher prices for its products. Uber rose 4.3% after easily beating profit forecasts for the latest quarter.
Caterpillar swung from an early loss to a 1.7% gain after reporting higher-than-expected earnings but weaker revenue.
Several technical factors may have accelerated the recent market meltdown, beyond weak U.S. hiring data and other reports, in what Barclays strategists call “a perfect storm” to cause extreme market moves. One is centered on Tokyo, where a favorite trade of hedge funds and other investors began to unravel last week after the Bank of Japan made borrowing more expensive by raising interest rates above zero.
Investors who had borrowed Japanese yen at low prices to invest elsewhere in the world were left in a quandary. The abandonment of these transactions may have helped accelerate the decline in markets around the world.
But Japan’s Nikkei 225 jumped 10.2% on Tuesday, following a 12.4% drop the day before, the worst since the Black Monday crash of 1987. Stocks in Tokyo rebounded as the value of the Japanese yen stabilized slightly against the U.S. dollar after several days of sharp gains.
“The speed, magnitude and shock factor clearly demonstrate” how the moves were driven by market participants’ stance, rather than concerns about the economy, according to Barclays strategists led by Stefano Pascale and Anshul Gupta.
Yet some voices on Wall Street continue to urge caution.
Barry Bannister, chief equity strategist at Stifel, warns that further declines could come as the U.S. economy slows and inflation soars. He has been predicting a “correction” in U.S. stock prices for some time, even acknowledging in July that his initial prediction was premature. That was two days before the S&P 500 hit its latest all-time high and began to plummet.
While fears of a slowdown in the U.S. economy are growing, the economy is still growing and a recession is far from certain. The U.S. stock market also remains up sharply so far this year. The S&P 500 has hit dozens of all-time highs this year, thanks in part to the frenzy over artificial intelligence technology, and critics have said the prices seem too high.
Elsewhere, European markets remained on the sidelines of the rebound, with stock indices down slightly in Germany, France and the UK.