(Bloomberg) — Stocks staged a solid rebound and bonds fell after the latest US labor-market reading helped ease fears about a more pronounced slowdown in the world’s largest economy.
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All major groups in the S&P 500 advanced, with the gauge set for its biggest rally since January 2023 as data showed US initial jobless claims tumbled the most in nearly a year. As economic angst subsided, Treasuries dropped across the curve — with the selloff led by shorter maturities. Bonds held their losses after a weak $25 billion sale of 30-year government debt.
Markets have been in a tailspin since last week’s economic data spurred concerns the Fed is waiting too long to cut rates from a two-decade high, jeopardizing prospects for a “soft landing.” Those jitters combined with stretched positioning, underwhelming tech earnings and poor seasonal trends were among the factors triggering massive financial volatility.
“Some good news with jobless claims coming in less than expected,” said Chris Zaccarelli at Independent Advisor Alliance. “It’s hard to believe a recession has already begun. We are exercising caution, but think that the panic that started earlier in the month was overblown.”
The S&P 500 rose over 2%. The tech-heavy Nasdaq 100 climbed 3%. The Russell 2000 of smaller firms added 2%. Nvidia Corp. led gains in tech megacaps. Eli Lilly & Co. soared on a bullish outlook driven by sales of its weight-loss drugs.
Treasury 10-year yields rose five basis points to 4%. Swap traders further trimmed bets on aggressive Federal Reserve easing in 2024. Cryptocurrencies surged, with investors returning to riskier assets across financial markets.
“Stocks are recovering from yesterday’s ugly intraday reversal as recession fears take a back seat following this morning’s release of decently anchored unemployment claims,” said Jose Torres at Interactive Brokers.
Initial claims decreased by 17,000 to 233,000 in the week ended Aug. 3, according to Labor Department data released Thursday. Any data which suggest that the Fed isn’t behind the curve in regards to its likely rate-cut in September is welcome news for investors, according to Bret Kenwell at eToro.
While traders in the swaps market have pulled back on their expectations for super-sized rate cuts in the US this year, they are still pricing in about 38 basis points worth of easing for September. Still, they see about 103 basis points of reductions in total for 2024, compared to around 65 basis points just over a week ago.
To Neil Dutta at Renaissance Macro Research, the issue right now is whether the Fed should be easing soon or not — and whether a large upfront move is likely or not.
“We are rallying today because of jobless claims!” Dutta said. “That’s unusual. If you get some downside surprises in the data next week, guess what happens? It will just fuel chatter back into the notion that the Fed is a bit behind the curve.”
While the recent stock-market rout flushed out some froth, US stocks remain at risk of more severe declines if growth continues to decelerate and the Fed “does not show urgency” in easing monetary policy, according to Dubravko Lakos-Bujas at JPMorgan Chase & Co.
Treasuries experienced a perfect storm over the past two weeks, with investors likely to remain focused on carry trade unwinds, labor market and growth data, inflation, and geopolitical risks in the weeks to come, according to TD Securities’ Gennadiy Goldberg.
“Markets will remain worried about the risk to a 50 basis-point cut in September and intermeeting cuts, though the pricing for both has receded significantly from recent highs,” he said. “A faster pace of Fed rate cuts also remains a worry, and we expect the Fed to cut rates by 25 basis points at each meeting starting in September until rates reach neutral at 3% by late-2025.”
Corporate Highlights:
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Apple Inc. is planning a new version of the Mac mini that will be its smallest desktop computer yet, part of a broader overhaul of the Mac line with AI-focused chips.
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Warner Bros. Discovery Inc., the entertainment giant, took a $9.1 billion charge for writing down the value of its traditional TV networks.
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Bumble Inc., a dating company, slashed its annual revenue outlook, signaling that an overhaul of the brand’s flagship app has failed to reignite growth.
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Eli Lilly & Co. is narrowing the gap with rival Novo Nordisk A/S in the race to dominate the red-hot obesity market as it expands its supplies of weight-loss drugs.
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Under Armour Inc. reported results that exceeded analysts’ expectations and raised its guidance as the athletic-wear brand shows signs of improvement under returning founder Kevin Plank.
Some of the main moves in markets:
Stocks
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The S&P 500 rose 2.2% as of 2:40 p.m. New York time
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The Nasdaq 100 rose 2.9%
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The Dow Jones Industrial Average rose 1.6%
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The MSCI World Index rose 1.6%
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Bloomberg Magnificent 7 Total Return Index rose 3%
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The Russell 2000 Index rose 2.2%
Currencies
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The Bloomberg Dollar Spot Index fell 0.2%
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The euro was little changed at $1.0915
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The British pound rose 0.4% to $1.2748
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The Japanese yen fell 0.4% to 147.26 per dollar
Cryptocurrencies
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Bitcoin rose 8% to $59,584.1
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Ether rose 10% to $2,583.45
Bonds
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The yield on 10-year Treasuries advanced five basis points to 4.00%
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Germany’s 10-year yield was little changed at 2.27%
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Britain’s 10-year yield advanced three basis points to 3.98%
Commodities
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West Texas Intermediate crude rose 1.1% to $76.02 a barrel
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Spot gold rose 1.7% to $2,424.57 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Cristin Flanagan, Robert Brand, John Viljoen, Julien Ponthus, Allegra Catelli, Divya Patil and Richard Henderson.
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