ASX set to inch up as Wall Street rebounds with rally

Japan’s Nikkei 225 jumped 10.2 per cent Tuesday to claw back much of its 12.4 per cent sell-off the day before, which was its worst since the Black Monday crash of 1987. Stocks in Tokyo rebounded as the value of the Japanese yen stabilised against the US dollar following several days of sharp gains.

“The speed, the magnitude and the shock factor clearly demonstrate” how much of the moves were driven by how traders were positioned, according to the strategists at Barclays led by Stefano Pascale and Anshul Gupta. That could indicate it wasn’t just worries about the US economy.

Still, some voices along Wall Street are continuing to urge caution.

Barry Bannister, chief equity strategist at Stifel, is warning more drops could be ahead because of a slowing US economy and sticky inflation. He’s forecasting both will be worse in the second half of this year than what much of Wall Street expects, while saying a measure of how expensive the US stock market is still looks “frothy” when compared with bond yields and other financial conditions.

The stock market’s “dip is not a blip,” he warned in a report, and called it “too soon to jump back in.”

He had been predicting a coming “correction” in US stock prices for a while, including an acknowledgement in July that his initial call was early. That was a couple of days before the S&P 500 set its latest all-time high and then began sinking.

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While fears are rising about a slowing US economy, it is still growing, and a recession is far from a certainty. The US stock market is also still up a healthy amount for the year so far, and the Federal Reserve says it has ample room to cut interest rates to help the economy if the job market weakens significantly.

The S&P 500 has romped to dozens of all-time highs this year, in part due to a frenzy around artificial-intelligence technology, and critics have been saying that’s sent stock prices too high in many cases.

They’ve pointed in particular to Nvidia, Apple and the other handful of Big Tech stocks in the “Magnificent Seven” that were the main reason the S&P 500 set so may records this year. Propelled in part by the mania around AI, they helped overshadow weakness across other areas of the stock market, which were struggling under the weight of high interest rates.

A set of underwhelming profit reports recently, kicked off by Tesla and Alphabet, added to the pessimism and dragged Big Tech stocks lower. Nvidia dropped nearly 19 per cent from the start of July through Monday on such concerns, but it rose 6.4 per cent Tuesday and was one of the strongest forces pushing upward on the market.

Apple, though, fell another 0.5 per cent and was the heaviest weight on the S&P 500.

In the bond market, Treasury yields were ticking higher to claw back some of their sharp drops since April, driven by rising expectations for coming cuts to interest rates by the Federal Reserve.

The yield on the 10-year Treasury rose to 3.91 per cent from 3.78 per cent late on Monday. It had briefly dropped below 3.70 per cent during Monday when fear in the market was spiking and investors were speculating the Federal Reserve could even have to call an emergency meeting to cut interest rates quickly.

AP