Stocks closed higher on Wall Street on Tuesday, bringing a sense of calm back to the market after its biggest pullback in almost two years. The S&P 500 rose one per cent, breaking a brutal three-day losing streak. This positive movement came after the index had tumbled more than six per cent due to concerns that the U.S. Federal Reserve had raised interest rates too aggressively, potentially slowing down the economy.
The Dow Jones industrial average also climbed 0.8 per cent by the close, while the Nasdaq composite added one per cent. The majority of stocks were on the rise, with smaller companies dependent on U.S. household spending and large multinationals benefiting from the global economy.
In contrast, the TSX closed down 1.12 per cent on Tuesday. Canada’s main stock index was closed on Monday for a bank holiday, and on Friday, it experienced its steepest daily drop since mid-February. Colin Cieszynski, chief market strategist at SIA Wealth Management, noted that Canadian stocks were catching up after being closed the previous day.
The TSX has a more traditional composition compared to major U.S. indexes, according to Martin Pelletier, a senior portfolio manager at Wellington-Altus Private Counsel. Despite this, there is still a correlation between global markets, meaning that a correction in the U.S. market can impact the Canadian market as well.
Stronger-than-expected profit reports from big U.S. companies helped support the market on Tuesday. Companies like Kenvue and Uber reported better-than-expected profits, leading to stock price increases. However, Caterpillar experienced mixed results with stronger earnings but weaker revenue.
Several technical factors may have contributed to the recent market volatility, including actions by the Bank of Japan that impacted global trades. The Nikkei 225 in Japan rebounded on Tuesday after a significant sell-off the day before, which had been its worst since the Black Monday crash of 1987.
Despite the rebound in U.S. markets, some analysts are urging caution. Barry Bannister, chief equity strategist at Stifel, warned of potential further drops due to a slowing U.S. economy and persistent inflation. He believes that the stock market dip is not just a temporary blip and advises against jumping back in too soon.
While concerns about a slowing economy persist, it is important to note that the U.S. economy is still growing, and a recession is not guaranteed. The stock market has seen significant gains this year, with the S&P 500 reaching numerous all-time highs. However, critics have raised concerns about overvaluation in the market.
In conclusion, the recent market volatility highlights the interconnectedness of global markets and the importance of monitoring economic indicators. While the rebound in U.S. markets is a positive sign, caution is advised as uncertainties remain. Investors should stay informed and consider diversifying their portfolios to mitigate risks in an ever-changing market environment.