Wall Street rallies in best day since 2022 as data helps ease growth fears

Watt Street has been unusually volatile this week. Photo / TheaDesign, Getty Images

Wall Street stocks surged on Thursday, posting their strongest daily gain since November 2022 as a drop in US unemployment claims helped to soothe fears over an imminent economic slowdown.

The benchmark S&P 500 share gauge rose 2.3%, closing out its best day in almost 21 months, while the technology-heavy Nasdaq Composite added 2.9% — its biggest daily gain since February.

The rally has helped retrace some of the losses suffered through a steep sell-off that began a week ago.

Those steep advances came after data on Thursday showed new US applications for unemployment aid — seen as a proxy for job cuts — had fallen to their lowest level in a month, bringing relief to investors after weaker-than-expected payroll figures last Friday triggered sharp selling across equity markets that spilled into the beginning of this week.

“It was the jobs report last week that sent markets into a tailspin,” said Kristina Hooper, chief global strategist at Invesco, so “it makes sense it was a labour market point that would calm markets” this week.

Figures from the US labour department earlier on Thursday gave a reading of 233,000 for initial state unemployment claims in the week ending August 3 on a seasonally adjusted basis, down from the previous week’s upwardly revised level of 250,000 — and below economists’ forecasts of 240,000.

By contrast, last week’s payrolls report showed the world’s biggest economy added just 114,000 jobs in July, far fewer than consensus predictions of 175,000 — sending share prices sharply lower in volatile trading on Friday and Monday, and triggering a steep rally in government bonds as investors cranked up their bets that the Federal Reserve would need to cut interest rates imminently.

The Vix index of expected US stock market turbulence, known as Wall Street’s “fear gauge”, had briefly topped a reading of 60 on Monday, well above its long-term average of about 20, before retreating.

That gauge of volatility sat at roughly 24 on Thursday, but the day’s share gains still left the S&P roughly 2.3% off its week-ago close, before the payrolls report sparked the sell-off.

Still, for Tim Murray, multi-asset strategist at T Rowe Price, the unemployment report was “a big positive surprise after we’ve seen this run of negative surprises”.

Invesco’s Hooper pointed to an “ongoing process of healing — but with the caveat that markets are going to be on edge because nothing has changed with the Fed. They are not going to do any kind of rate cut before the September meeting.”

“I think it’s going to take time for markets to normalise but we have to ask ourselves what triggered that sell-off, and I think it was irrational,” she added. “I don’t think it’s telling us that we have a big recession coming.”

Equities had until recently had a particularly strong run, driven by hopes of a “soft landing” whereby the Fed successfully brings down inflation without triggering a recession, and by enthusiasm for artificial intelligence companies.

Murray noted that chipmaking giant Nvidia’s second-quarter earnings are due out later this month.

Those figures “always have read-throughs for the broader AI infrastructure complex”, he noted.

“That might be something that really supercharges the market.”

“But even then, I would be surprised if that happened. It’s more likely we’re back to a slow grind up. And if we have some negative data points along the way, then it could easily move back down very quickly.”

Written by: Harriet Clarfelt in New York

© Financial Times