Stock Market Today: Why the Stock Market Is Rebounding After Crash, Dow, Nasdaq, S&P 500 Set to Open Up; Japan’s Nikkei Up 10%; Nvidia, MicroStrategy, Apple, More Movers; Treasury Yields Rise

In Tokyo, the benchmark Nikkei stock index closed 10% higher on Tuesday after falling more than 12% on Monday—its worst day since ‘Black Monday’ in 1987.

Ever since the jobs data on Friday painted a picture of a clearly weakening labor market, the chatter in the market was about the risk of a recession. Those worries snowballed on Monday, fueling the big selloff.

Cooler heads are returning today. The bottom line is that while unemployment has been ticking up, it’s still historically low. The economy isn’t as strong as it used to be, but there’s nothing in the data that suggests it’s about to fall off a cliff, either.

There aren’t a lot of economic data coming during the rest of the week–the weekly initial jobless claims on Thursday are something, but not a huge barometer.

Traders have eased up on expectations for the Federal Reserve as well. On Monday, there was a near 100% chance priced in that the Fed would make a half-point cut in September, or would make an emergency move before then, according to the CME FedWatch tool.

Those odds have receded–now sitting at about 75% for a half-point move in September. That would still be twice as large a cut as expected just a few weeks ago, and traders clearly see it as more likely than not. But they’re not as jittery as they were.

Monday was a very bad day for stocks, especially in Japan. But traders seem able to swiftly shift gears—they’re retracing much of the losses on Tuesday.

Futures for the three main U.S. indexes were marching higher after their worst day in more than a year. The Dow Jones Industrial Average added 274 points, or 0.7% in premarket trading. Futures for the S&P 500 gained 0.9%, while contracts tied to the tech-heavy Nasdaq Composite rose 1.1%. All three indexes fell about 3% on Monday.

In Tokyo, the benchmark Nikkei stock index gained 10% on Tuesday after falling more than 12% on Monday–its worst day since ‘Black Monday’ in 1987.

There’s a lot going on behind these dramatic moves—fears of a U.S. recession, worries that artificial intelligence may be overhyped for technology stocks, concern that it’s too late for Federal Reserve interest-rate cuts to help companies’ earnings. Japan in particular was burdened by the unwinding of the carry trade, in which people borrow in yen to invest in higher-yield assets elsewhere. At the same time, the S&P is still up 15% over the past 12 months, and corrections are normal after long periods of gains.

“Investors shouldn’t assume this relative calm means markets are back to behaving rationally again,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown. “The good news for longer-term investors is that no single piece of this puzzle warrants such a massive shift in sentiment, this looks to be more about a perfect storm of factors. Calmer waters should prevail.”

Bond yields moved a little higher. The rate on the benchmark 10-year U.S. Treasury bond was at 3.872%, while the yield on the 2-year note was at 4.002%.

Gold futures were rising 0.4% to $2,454.4 a troy ounce, recovering ground from Monday’s broader market sell-off, when it sank as low as $2,403.8 an ounce.

The precious metal was dragged down by the general panic at the start of the week despite its safe-haven characteristics, said Commerzbank analysts in a note.

It is possible gold investors see growing hopes that the Federal Reserve will cut U.S. interest rates more than twice in 2024—which would boost gold’s desirability—as unrealistic, or the precious metal’s unusual weakness may lie in it being sold in sell-off phases to compensate for losses in other assets, Commerzbank said.

This type of behavior has happened before in 2008 and 2020, but the price weakness didn’t last long and gold recovered losses after a short time, Commerzbank added.