Traders work on the floor of the New York Stock Exchange (NYSE) on July 22, 2024 in New York City.
Spencer Platt | Getty Images
S&P 500 futures bounced in overnight trading after the broad index notched its worst day in nearly two years as global markets sold off.
Futures tied to the S&P 500 rose 0.9%, while Nasdaq 100 futures rallied 1.2%. Futures connected to the Dow Jones Industrial Average jumped 230points, or 0.6%.
The overnight moves follow a sharp sell-off during regular trading. The 30-stock Dow dropped 1,033.99 points, or 2.6%, while the S&P 500 slid 3%. Both indexes notched their worst sessions since September 2022. The Nasdaq Composite shed 3.43%, and 15% off its closing high.
A weak July jobs report Friday sparked concerns that the Federal Reserve is behind the curve on rates cuts, fueling fears of a recession.
These fears spilled over into global markets, with Japan’s Nikkei 225 index registering its worst daily decline since Black Monday in 1987. U.S. Treasury yields declined as investors flocked to safe-haven bonds. The Cboe Volatility Index at one point surged to 65, its highest level since 2020.
The Dow, S&P 500 and Nasdaq are down 5%, 6% and 8% respectively in three days, their worst 3-day performance in more than two years.
A major unwind in the yen “carry trade” also contributed to the volatility. The Bank of Japan last week raised interest rates, contributing to a rise in the yen. That’s affected the practice of traders borrowing in the cheaper currency to purchase other global assets.
“After such a strong rally since last fall, valuations, sentiment, and investor positioning had become stretched,” said Quincy Krosby, LPL Financial’s chief global strategist. “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.”
Artificial intelligence stocks bore the brunt of Monday’s spiral, with Nvidia and Apple dropping about 6% and nearly 5%, respectively. Both stocks bounced in after-hours trading. The VanEck Semiconductor ETF (SMH) fell 2% while megacaps Alphabet, Amazon and Tesla dropped more than 4%. All three stocks rose about 1% in overnight trading Traders have been worried as of late as to when megacap tech companies’ investments in AI will pay off.
Many investors have come to view Monday’s sell-off as long overdue in a market that’s reached high valuations and new records, with some cautioning that the pain may have more room to run.
“It’s too early to say the low is in,” wrote Keith Lerner, Truist’s co-chief investment officer. “There has been damage done, and the repair process will likely take time. However, the risk/reward appears to be gradually improving as the market’s bar for positive surprises resets lower.”
In other news, Palantir Technologies surged 13% in after-hours trading on strong quarterly results and a guidance lift, while Lucid Group rallied 6% on better-than-expected revenue in the second quarter.