After a tumultuous three-day decline caused by concerns about a slowing U.S. economy and high valuations in the technology sector, the U.S. stock market showed signs of resilience on Tuesday. Futures on the Nasdaq 100 index bounced off local lows and gained 4.31%, as the market began to stabilise.* This recovery took place against the backdrop of worrying unemployment data, which raised concerns about the Federal Reserve's pace in adjusting interest rates to prevent a slowdown in economic growth.
Market sentiment and strategic actions
The reduction in volatility, as evidenced by the decline in the VIX index - a measure of expected market volatility based on options for the S&P 500 index - from its highest level since 2020, signals a calming of the situation for the time being. Complementing this information, it is important to note that on Tuesday, August 6, the Atlanta Fed raised its GDP growth forecast from 2.5% to 2.9%. Such a positive adjustment, one of the most important macroeconomic indicators, does not indicate a recession. [1]
In addition, there has been considerable institutional buying activity, with JPMorgan Chase & Co. quantitative and derivatives analysts noting $14 billion in net purchases during market hours on Monday. That inflow, coupled with hedge funds buying declining technology stocks, as recorded by data from primary broker Goldman Sachs Group Inc. opens a new perspective on this correction. The price of the Nasdaq 100 index has fallen below the external March low, below which there was a significant amount of liquidity, with data confirming that institutional market participants took advantage of it.*
Performance of individual stocks and sectors
Notable moves were also seen in individual stocks. Nvidia Corp, on Monday during the main U.S. trading session, was up 9.11%, with other stocks also posting gains. Palantir Technologies Inc. saw gains after it raised its full-year forecasts, buoyed by strong demand for its artificial intelligence software. Cybersecurity firm Crowdstrike Holdings Inc. benefited from Piper Sandler's recommendations to buy shares at reduced valuations. Uber Technologies Inc. also outperformed following an earnings report that beat expectations .*
Wall Street Insights
Wall Street analysts urged clients not to overreact to the recent weakness. Savita Subramanian of Bank of America Corp. pointed out that declines of 5% or more have occurred an average of three times a year since the 1930s and that a full-blown bear market remains unlikely. Similarly, analysts led by David Kostin of Goldman Sachs pointed out that buying US stocks after a significant decline has historically been profitable, with the S&P 500 index typically delivering an average return of 6% in the three months following a 5% decline from a recent high.
Conclusion
The future course of the US stock market remains closely tied to upcoming economic data, which will be crucial in shaping the Federal Reserve's policy decisions. In conclusion, it can also be noted that although the stock market is showing signs of recovery from the recent sharp decline, investors should remain vigilant and closely monitor economic indicators and Federal Reserve actions. [2]
The price performance of the Nasdaq 100 Index over the past five years: https://tradingeconomics.com/us100:ind
Nvidia stock price performance over the past five years: https://tradingeconomics.com/nvda:us
CrowdStrike's stock price performance over the past five years: https://tradingeconomics.com/crwd:us
* Past performance is no guarantee of future results
[1], [2] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which may change. Such statements are not guarantees of future performance. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.
