Wall Street bounces again after fears of US recession fade

Wall Street rebounded yesterday after a global market meltdown sparked by the possibility of a recession in the US.

Markets rallied as investor panic over a slowdown in the world’s biggest economy faded – but there were warnings that there could be more to come.

Weaker-than-expected jobs data and concerns that American tech giants are overvalued saw stocks tumble around the world on Monday.

Traders have now priced in 1.25 basis points of US Federal Reserve rate cuts for the rest of 2024 after the central bank was accused of holding borrowing costs for too long. 

And Wall Street’s ‘fear gauge’ was last night on track for its second biggest decline of all time after rising to pandemic-era highs on Monday.

But investors were warned that there could be more pain to come as the stock market correction ‘has not gone far enough’. 

New York’s main indexes recovered on Tuesday with the Dow Jones Industrial Average up 0.8 per cent after falling 2.6 per cent a day earlier. 

The S&P 500 gained 1pc after closing 3.4 per cent down on Monday and the tech-heavy Nasdaq Composite rose 1 per cent after booking a 2.9 per cent drop the previous day.

In the City, the FTSE 100 ticked upwards to close 0.2 per cent up at 8026.69 after falling for the previous four sessions. 

The blue-chip index was less buoyant due to the weighting of precious metal miners that were hit by a drop in the price of gold. 

Endeavour Mining and Fresnillo were among the biggest fallers, dropping 4 per cent and 3.1 per cent respectively.

Mohit Kumar, analyst at broker Jefferies, said: ‘We do not think that the US economy – or Europe – is headed for a hard landing.’

Tokyo’s Nikkei 225 staged a comeback, rising 10 per cent after falling 12 per cent the previous day in its biggest drop in 30 years.

Deutsche Bank analyst Jim Reid said: ‘It’s a turbo-charged turnaround Tuesday in Asia.’ 

An unwinding of the ‘carry trade’ in Japan – where traders borrowed money from countries with low interest rates to fund investments – accelerated the stock market rout.

Japanese prime minister Fumio Kishida called for calm following the sharp decline on Monday. 

It came after Japanese officials held an emergency meeting to discuss the global sell-off. 

The return of volatility follows an unusually long period of market calm, where the S&P 500 went 356 sessions without a 2 per cent or larger move lower, the longest such streak since 2007.

Hargreaves Lansdown analyst Matt Britzman said: ‘What a difference a day makes.’

But he added: ‘Investors shouldn’t assume this relative calm means markets are back to behaving rationally again. The volatility index is still at elevated levels, suggesting more turbulence to come.’