In CNBC’s article “S&P 500 futures bounce after index posts worst day in nearly two years: Live updates,” Samantha Subin quotes Quincy Krosby, LPL Financial’s chief global strategist, saying, “After such a strong rally since last fall, valuations, sentiment, and investor positioning had become stretched. What markets are experiencing today is an unwinding of that bullish positioning, which is particularly evident in the yen and the so-called carry trade.” In overnight trading, S&P 500 futures saw a rebound after the index had its steepest drop in nearly two years. S&P 500 futures rose 0.9%, Nasdaq 100 futures jumped 1.2%, and Dow Jones Industrial Average futures went up by 230 points, or 0.6%. This recovery followed a sharp decline during regular trading hours, where the Dow fell by 1,033.99 points or 2.6%. The S&P 500 dropped 3%, and the Nasdaq Composite fell by 3.43%, which is a 15% drop from its recent high.
The initial market sell-off was triggered by a disappointing July jobs report, causing concerns that the Federal Reserve might be slow in adjusting interest rates, thus raising fears of a possible recession. These worries spread to global markets, with Japan’s Nikkei 225 index seeing its worst daily drop since Black Monday in 1987. In the U.S., investors turned to safe-haven bonds, leading to a drop in Treasury yields, and the Cboe Volatility Index spiked to 65, its highest level since 2020. Over the past three days, the Dow, S&P 500, and Nasdaq have fallen by 5%, 6%, and 8%, respectively, marking their worst three-day performance in over two years.
Extra volatility came from a major unwinding of the yen carry trade after the Bank of Japan’s recent rate hike, which increased the yen’s value. This affected traders who had borrowed in the low-cost yen to invest in other global assets. Quincy said the markets were undoing bullish positions built up during the strong rally since last fall. AI stocks were especially hit, with Nvidia and Apple dropping by about 6% and 5%, respectively, although both saw gains in after-hours trading. On a positive note, Palantir Technologies surged 13% after strong quarterly results, and Lucid Group rose 6% on better-than-expected second-quarter revenue.
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