Stocks bounced off bottom on Tuesday and began to rebound from their worst three-day stretch in years. But the fears that drove the recent selloff—from recession risks to inflation —remain prevalent.
Overseas, the pan-European
was up 1.2% but Hong Kong’s
Hang Seng Index
played catch-up to Wall Street’s Monday malaise, losing 1.8%.
It has been a brutal few days for stocks, with the Dow and S&P 500 notching their worst three-day performances since October and March 2020, respectively. For the Nasdaq—which is deep in a bear market, down more than 26% since the beginning of the year—last Thursday through Monday was the ugliest three days on record.
“Markets are pretty black at the moment,” said Jim Reid, a strategist at
Deutsche Bank. “Investor jitters about the global growth outlook have continued to escalate,” he added, and despite some respite on Tuesday, “markets remain very shaky.”
At least one analyst suggested that the move higher on Tuesday may not last long and was caused by short-covering. This is when investors who have taken a short position, betting that an asset will fall in price, buy back the asset to close their position.
“Yesterday was carnage, but was it capitulation?” said Neil Wilson, an analyst at broker Markets.com. “Stock markets in Europe and U.S. futures are attempting to rally this morning but we still question whether the bottom is in …likely to be a short-covering rally for now as I feel we are not at max fear levels yet.”
Investors face a difficult environment. The Federal Reserve has already moved aggressively to raise interest rates this year as it battles inflation at a four-decade high, and is expected to continue through this year and next. Higher borrowing costs will dent economic demand, and there are fears that this will cause a recession.
A looming slowdown in China amid Covid-19 lockdowns that threaten to disrupt U.S. corporate supply chains—further stoking inflation—as well as the Russia-Ukraine war only complicate the picture.
“The current stock market selloff is the steepest since March 2020 and although pullbacks are common, investors should be more cautious now as the Federal Reserve embarks on what will be a lengthy effort to reduce stimulus from the economy,” said Richard Saperstein, the chief investment officer at asset manager Treasury Partners.
“Stocks will likely find a bottom when the Federal Reserve signals a pause in its tightening campaign, inflation shows signs of moderation or stock multiples become very attractive.”
The digital asset space has also fared poorly.
the largest cryptocurrency, was down near 5% over the past 24 hours to $31,800, having traded around $36,000 last Friday before beginning to slide over the weekend.
In the depths of Monday trading, Bitcoin broke below the key $30,000 barrier, a level it hasn’t consistently traded below since late 2020.
Write to Jack Denton at [email protected]