U.S. Stocks Rebound Sharply on Tuesday, Reversing Monday’s Losses
The U.S. stock markets experienced a robust recovery on Tuesday, with both the S&P 500 and Nasdaq 100 climbing over 2%, almost entirely erasing Monday’s losses. Investors seized the opportunity presented by recent volatility to buy the dip, demonstrating continued confidence in the U.S. economy’s ability to avoid a recession. This broad-based improvement in market sentiment was reflected in gains across both small-cap and blue-chip stocks.
Key Takeaways:
- Strong market rebound: The S&P 500 and Nasdaq 100 both soared over 2%, almost entirely erasing the previous day’s losses.
- Buy-the-dip sentiment: Investors took advantage of volatility to purchase stocks at lower prices, demonstrating confidence in the U.S. economy.
- Reduced expectations for Fed rate cuts: The likelihood of a 50-basis-point rate cut in September has decreased, supporting the dollar’s rebound and driving Treasury yields higher.
- Trade deficit narrows: The U.S. trade deficit narrowed slightly in June, indicating a potential positive sign for the economy.
Market Sentiment Shifts Amid Reduced Rate Cut Expectations
The CBOE Volatility Index (VIX), commonly known as the "fear gauge," experienced a significant decline of almost 40% on Tuesday, having spiked by 65% on Monday. This drop in the VIX signals a decrease in investor anxiety and a shift towards a more optimistic market outlook.
The Federal Reserve’s potential actions remain a key driver of market sentiment. The FedWatch Tool showed a decrease in the likelihood of a 50-basis-point interest rate cut in September, shifting from 90% on Monday to 64% on Tuesday. This reduction in expectations for a larger rate cut contributed to the rise in Treasury yields during the day. The 10-year yield climbed 11 basis points to 3.9%, while the two-year yield increased 9 basis points to 4.01%.
Dollar Gains Strength on Rising Yields and Reduced Rate Cut Expectations
The rebound in the U.S. dollar was fueled by the increase in yields and the diminished anticipation of a larger rate cut in September. The dollar appreciated by 0.8% against the low-yielding Japanese yen, ending a streak of five consecutive days of losses. The stronger dollar is a positive sign for the U.S. economy, indicating confidence in its future prospects.
Macroeconomic Data Provides Mixed Signals
Tuesday’s macroeconomic data release focused on June’s trade figures. The U.S. trade deficit narrowed to $73.1 billion in June 2024 from a revised 20-month high of $75 billion in May. This narrowing of the trade deficit was slightly above market forecasts of a $72.5 billion gap. Increased exports, which rose by 1.5% to $265.9 billion – the second highest on record – played a role in this reduction. Imports, while also increasing, grew at a more modest rate of 0.6% to $339 billion.
Commodity Markets Experience Continued Declines
Gold prices decreased by 0.7% for a fourth consecutive session, while oil prices fell 0.8% marking their fourth consecutive decline. The decline in commodity prices, particularly gold, often indicates a potential shift in investor sentiment towards riskier assets.
Notable Stock Movers and Post-Close Earnings Reports
Nvidia Corp. (NVDA) rallied over 6%, breaking a streak of three consecutive losses. Meta Platforms Inc. (META) also saw a significant gain, soaring over 5%, marking its best one-day surge in a month.
Stocks reacting to company earnings included:
- ADTRAN Holdings, Inc. (ADTN), down nearly 18%.
- Caterpillar, Inc. (CAT), up 3.8%.
- Constellation Energy Corporation (CEG), up 6.9%.
- CSX Corp. (CSX), up 3.7%.
- Duke Energy Corporation (DUK), up 2.3%.
- Expeditors International of Washington, Inc. (EXPD), down 4.4%.
- Fox Corporation (FOXA), up 6.7%.
- GLOBALFOUNDRIES Inc. (GFS), down 1%.
- Hyatt Hotels Corporation (H), down 0.7%.
- Lucid Group, Inc. (LCID), up 9%.
- Molson Coors Beverage Company (TAP), up 6.8%.
- Palantir Technologies Inc. (PLTR), up 12.3%.
- Uber Technologies, Inc. (UBER), up 11%.
- Teradata Corporation (TDC), down about 14%.
- WK Kellogg Co (KLG), down 6.7%.
- Yum! Brands, Inc. (YUM), up 3.7%.
- ZoomInfo Technologies Inc. (ZI), down nearly 19%.
Companies reporting after the close included: Airbnb, Inc. (ABNB), Coupang, Inc. (CPNG), Devon Energy Corporation (DVN), Amgen, Inc. (AMGN), Cirrus Logic, Inc. (CRUS), Exelixis, Inc. (EXEL), Fortinet, Inc. (FTNT), GoPro, Inc. (GPRO), Illumina, Inc. (ILMN), Jack in the Box Inc. (JACK), IAC Inc. (IAC), Tripadvisor, Inc. (TRIP), Reddit, Inc. (RDDT), Rivian Automotive, Inc. (RIVN), Sunrun Inc. (RUN), Wynn Resorts, Limited (WYNN), and Super Micro Computer, Inc. (SMCI).
Bitcoin Recovers from Recent Losses
Bitcoin (BTC/USD) rebounded by 4.9% on Tuesday, after experiencing a 7% drop on Monday. This rebound suggests potential investor interest in the cryptocurrency market despite recent volatility.
Performance of Major U.S. Indices and ETFs
Major Indices:
- Nasdaq 100: 18,312.03, up 2.3%
- S&P 500: 5,295.41, up 2.1%
- Russell 2000: 2,081.01, up 1.9%
- Dow Jones: 39,301.11, up 1.5%
- ETFs:
- SPDR S&P 500 ETF Trust (SPY): $528.42, up 2.2%
- SPDR Dow Jones Industrial Average (DIA): $393.21, up 1.7%
- Invesco QQQ Trust Series (QQQ): $445.63, up 2.4%
- iShares Russell 2000 ETF (IWM): $206.06, up 1.9%
All 11 sectors of the S&P 500 saw gains, with the Technology Select Sector SPDR Fund (XLK) leading the way, increasing by 3.1%. The Health Care Select Sector SPDR Fund (XLV) witnessed the smallest gain, up 1.4%.
The U.S. stock market rebound on Tuesday demonstrates the resilience of the market and the continued belief in the economy’s strength. The reduction in rate cut expectations, however, introduces some uncertainty, and investors will continue to monitor the Fed’s actions closely. While the market experienced a significant turnaround, it’s important to remain cautious and stay informed about potential future developments.
