US stocks have bounced off the bottom! Confidence returns despite recession risk
At the beginning of the second week of August, stock markets experienced significant declines, causing concern among investors. Stock values were in considerable negative territory and analysts were quick to compare the situation with the last financial crisis. However, on Friday 9 August, the situation changed: the S&P 500 index had already experienced its best 24-hour rise since November 2022 a day earlier.
New data from the US labour market restored confidence in the US economy, leading to a rise in shares on all three major US indices. The S&P 500 rose 2.3% to close at 5,319.31, the Nasdaq Composite gained 2.9% to post its biggest gain since February, and the Dow Jones rose 1.76%, its best performance since July.
A major contributor to the rise was pharmaceutical company Eli Lilly, whose shares rose 9.5% after posting positive results. Also, stocks that were hit hardest by Monday’s sell-off, such as Nvidia and Broadcom, rose more than six per cent, while Meta added 4.2 per cent and Apple 1.7 per cent.
Although the indexes have recovered, they are still below their July highs – the S&P is down 6%, the Dow Jones is down 4% and the Nasdaq is losing more than 10% from its July record.
However, the US economy still faces the risk of recession. JPMorgan Chase estimates that there is a 35% chance of a recession by the end of the year. According to portfolio manager Martin Pavlik of Consequ, we can expect more volatility in the markets, but no black scenario is likely. He expects a slowdown in the economy rather than significant market declines.
Portfolio manager Semotan of J&T Bank is also cautious about the market situation. He does not expect the markets to go up only and warns of the possibility of further sell-offs due to geopolitical events or further moves by the Fed. Still, he advises to remain calm and avoid hasty decisions. He believes the current correction could be an opportunity to buy quality stocks at bargain prices.
In the long run, the recent correction should be meaningless and bring stock prices closer to their true value. Pavlik concludes that trying to time the market is often less successful than regular investing, and unnecessary intervention in a portfolio can do more harm than good.
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