It started, innocently enough, in markets, when high-flying tech stocks started giving back gains that nearly all of Wall Street was convinced had gone too far.
Denitsa Tsekova and Emily GraffeoThe New York Stock Exchange in New York, US, on Wednesday, July 31, 2024. Federal Reserve officials held interest rates at the highest level in more than two decades but signaled they are moving closer to lowering borrowing costs amid easing inflation and a cooling labor market. Photographer: Michael Nagle/Bloomberg --
In short, while economic fears lit the match that fueled the selloff’s loudest bursts, a daisy chain of leverage drove a slew of market reversals that muddy the potential recessionary message from slumping stocks — to everyone from retail day traders to Jerome Powell, who looks poised to lower rates in September. With a slew of asset classes and sectors not yet screaming economic angst, one bullish mantra is beginning to emerge from the noise: Buy the dip.
“When you get these violent moves, the market always overshoots, and that’s exactly what happened,” said Michael de Pass, global head of rates trading at Citadel Securities. “It was an overshoot driven by a bond market that had a lot of room to rally given where current fed funds levels are.” Especially harsh for professional investors was disruption of a popular strategy where money borrowed in the Japanese currency is used to fund purchases of higher-yielding assets elsewhere — the so-called carry trade — which shuddered as the yen appreciated for five straight weeks.
Still, almost as quickly as it blew up, volatility eased. After bouncing Tuesday, the S&P 500 staged its biggest rally since 2022 on Thursday and managed to finish its most tumultuous week since 2022 virtually unchanged. Bond yields rose over three straight days and the VIX dropped back toward 20 after rising above 65 at the height of the maelstrom.
On the earnings front, tech champions Alphabet Inc., Amazon.com Inc. and Tesla Inc. all saw their shares slide after disappointing results. Yet the broader picture remains sound. As of Friday, analysts put S&P 500 profit growth at just over 14 per cent in 2025 and 11.8 per cent in 2026.
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