(Bloomberg) — US stock futures rose, as dip buyers emerged after global equities witnessed a three-day selloff amid concerns of a possible slowdown in the world’s largest economy and extreme valuations in the technology sector.
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Futures on the S&P 500 Index gained as much as 1.3% in early Asian trading hours Tuesday while contracts on the Nasdaq 100 rose 1.8%. Markets bounced back elsewhere as well, with Japan’s Topix jumping more than 10% as the yen weakened after a five-day surge against the US dollar. The Topix lost more than 12% in the previous session.
The MSCI All-Country World Index slumped 6.4% in three sessions through Monday. The turmoil was sparked in part by data showing a rise in US unemployment, causing investors to worry whether the Federal Reserve is moving to quickly enough to cut rates in order to stave off a recession. The US services sector expanded in July after contracting a month earlier by the most in four years, data showed Monday, which may help allay fresh concerns about an abrupt downturn in the economy.
“The actual equity market selling was mild relative to the panic expressed over social media in the past 24 hours,” Mike O’Rourke, chief market strategist at Jonestrading, wrote in a report. “A 10% or more correction is absolutely appropriate amid such market strength.”
On Monday, the S&P 500 and Nasdaq 100 dropped 3% each, while the Cboe Volatility Index “fear gauge” climbed by the most since 2018 amid the threat of recession and a fierce unraveling of the global artificial intelligence rally. With stocks coming off record highs set just a few weeks ago, the question is how far the current losses will extend.
Meanwhile, the Bank of Japan’s move to start raising interest rates has launched an unwinding of carry trades, in which global traders borrowed at low rates in Japan to fund purchases of higher-yielding assets elsewhere. Some see the impact as limited, however, and the easing of the yen on Tuesday could provide some relief.
“A recession is unlikely in the US unless it is proceeded by a financial crisis that causes an economy-wide recession,’ Ed Yardeni of Yardeni Research wrote in a report. “Perhaps the carry trade calamity is such a financial crisis and will cause a credit crunch and a recession? We don’t think so.”
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