US indexes end with strong gains, rebounding from sell-off

The S&P 500 and Nasdaq ended 1% higher as investors jumped back into the market a day after a dramatic sell-off, with recent comments by Federal Reserve officials easing US recession worries.

The Dow rose as well on Tuesday but all three major stock indexes pared gains heading into the close and ended well off their highs of the day.

US central bank policymakers have pushed back against the idea that weaker-than-expected July jobs data means the economy is headed for a recession, but they have also warned that the Fed will need to cut interest rates to avoid such an outcome.

Stocks had sold off as weak economic data raised worries of a US recession.

Traders are pricing in a 75% chance the Fed will cut rates by 50 basis points at its next policy meeting in September, and a 25% chance of a 25 basis point reduction, the CME Group’s FedWatch Tool showed.

All major S&P 500 sectors ended higher, with real estate and financials up the most. Technology megacap Nvidia rose nearly 4%, giving the S&P 500 and Nasdaq their biggest boosts.

“The market had just gotten top heavy, but it did reprice a decent amount, particularly the Nasdaq, and people are coming back to the idea that with lower rates it should provide a support for stocks,” said Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey.

The Dow Jones Industrial Average rose 294.39 points, or 0.76%, to 38,997.66, the S&P 500 gained 53.7 points, or 1.04%, at 5,240.03 and the Nasdaq Composite advanced 166.77 points, or 1.03%, to 16,366.86.

The Nasdaq Composite is still up 9% so far in 2024, driven earlier in the year by strong earnings and optimism over artificial intelligence.

“While (recent) earnings were good, in many cases they weren’t great,” Meckler said.

Valuations have been stretched.

The S&P 500 was last trading at 20 times forward 12-month earnings estimates, compared with its long-term average of 15.7, LSEG data showed.

Recent market concerns were exacerbated as investors wound down yen-funded trades, used to finance acquisition of stocks for years, after a surprise Bank of Japan rate hike last week.

Video: Why stock markets fell so badly

The next big Fed event is Chair Jerome Powell’s speech at Jackson Hole, Wyoming, on August 22-24.

Uber shares jumped 11% after the ride-sharing and food delivery provider beat Wall Street estimates for second-quarter revenue and core profit, helped by steady demand for its services.

Caterpillar gained 3% after beating analysts’ estimates for second-quarter profit, as higher prices on its larger excavators and other equipment countered moderating demand in North America.

Volume on US exchanges was 13.52 billion shares, compared with the 12.48b average for the full session over the last 20 trading days.

Advancing issues outnumbered declining ones on the NYSE by a 2.59-to-1 ratio. On the Nasdaq, a 1.93-to-1 ratio favoured advancers.

The S&P 500 posted 12 new 52-week highs and seven new lows; the Nasdaq Composite recorded 31 new highs and 144 new lows.

-Reuters