Stock Market Rebounds After Last Week’s Sell-Off
Major indexes on Wall Street experienced a significant rebound on September 9, with the Dow Jones Industrial Average rising 1.20 percent, the S&P 500 gaining 1.16 percent, and the Nasdaq Composite also increasing by 1.16 percent. This recovery came after a tumultuous week where the Dow shed over 1,200 points and the Nasdaq recorded its largest weekly loss since January 2022. The sell-off was triggered by a weaker-than-expected jobs report and disappointing manufacturing numbers, causing investors to retreat from risky assets like equities.
Last week’s concerns about the health of the U.S. economy were brought to the forefront due to weak manufacturing reports, a historic rise in August layoffs, and a lackluster jobs report. These factors raised fears of an economic slowdown, leading to an overreaction in the market. However, analysts believe that the sell-off was an overblown reaction and that a pause in the market allows for more rational decision-making.
Analysts at major banks have different predictions for the likelihood of a U.S. recession, with estimates ranging from 20 percent to 35 percent. Morgan Stanley has also cut its oil forecast, suggesting that traders are anticipating a demand slowdown similar to that of a mild recession.
The buying spree in stocks on September 9 can be attributed to classic dip-buying behavior, as investors sought out undervalued stocks. For example, shares of chipmaker Nvidia saw a significant increase after falling last week. Investors were looking for high-quality stocks at lower prices.
Looking ahead, investors are eagerly awaiting the release of the consumer price index (CPI) data on Wednesday for insights into future inflation trends and clues about potential interest rate cuts by the Federal Reserve. The market is currently pricing in a rate cut when the Fed officials meet on September 18, with the odds of a quarter-point cut at 70 percent. However, there is still a possibility of a 0.5 percentage point rate reduction.
The Federal Reserve has been grappling with rising inflation, which reached a peak of 9 percent in June 2022. To combat this, interest rates were raised to their current level of 5.25-5.5 percent. These actions have helped control inflation and cool down the economy and job market.
In addition to economic factors, the upcoming presidential candidate debate on September 10 between former President Donald Trump and Vice President Kamala Harris could have an impact on the market. Analysts predict that the debate could be a significant market mover, as seen in the previous debate in late June where Joe Biden’s poor performance led to a swing in the polls towards Trump and a stronger dollar.
Investors are also keeping an eye on the presidential election and its potential impact on the markets. ING analysts suggest that the most bullish scenario for the U.S. dollar would be if Trump wins the presidency and Republicans gain control in Congress.
As the market navigates through these upcoming events, investors will continue to assess economic indicators and policy positions to make informed decisions.
