On Tuesday, US equity indexes made a noteworthy rebound amidst a pronounced surge in government bond yields and a marked decline in market volatility. This occurred shortly after comments from Federal Reserve officials followed a substantial drop in stock prices on Monday. The Nasdaq Composite bounced back, climbing by 2.3% to reach 16,575.51 points.
Simultaneously, the S&P 500 index increased by 2.1% to settle at 5,295.1, and the Dow Jones Industrial Average saw an upward movement of 1.4%, ending the day at 39,255.8 by midday. This bullish trend was reflected across all sectors, with particular strength noted in real estate, technology, and financials.
In insights provided by D.A. Davidson, dovish remarks from Federal officials revitalized market sentiment, prompting investors to seek attractive bargains following a recent downturn in the market. The Federal Reserve has expressed its readiness to intervene and correct any signs of market weakness or instability.
Notably, in a CNBC interview, Chicago Fed President Austan Goolsbee emphasized the Fed's stance, while his counterpart from San Francisco, Mary Daly, reiterated that the current monetary policy is effectively slowing economic activity as intended. One of the key indicators of market fear, the CBOE's Volatility Index (VIX), plummeted by 27% to settle at 27.91 intraday, following an extraordinary surge of 65% the day before, marking one of the largest intraday movements seen since the global financial crisis, as noted by Deutsche Bank.
The drastic movement is indicative of the explosive growth observed in short-dated options trading over the past few years. As per the latest data from the FedWatch Tool, the probability of a 50 basis point cut in interest rates saw a reduction, dropping to 67% on Tuesday afternoon, down from a substantial 85% the previous day.
Furthermore, there was a marked increase in most Treasury yields throughout the day, with the yield on a 10-year note climbing by 10.4 basis points to reach 3.89%, and the two-year rate increasing by 11.9 basis points, hitting 4%. In economic updates, the US international trade deficit showed signs of improvement, narrowing to $73.11 billion in June, down from a $75.01 billion gap recorded in May, which was slightly above the anticipated shortfall of $72.5 billion, according to a survey conducted by Bloomberg.
This adjustment was driven by a rise in exports that outpaced imports, thereby facilitating the reduction of the trade deficit. The sentiment index from RealClearMarkets, a notable consumer confidence measure for August, observed an uptick from 44.2 in July to 44.5 in August. Notably, a reading below 50 symbolically indicates a prevalent pessimism among consumers.
In corporate news, Uber Technologies ($UBER) showcased robust demand as it reported stronger-than-expected gains in its second-quarter results, leading to a remarkable 11% surge in its share price, marking the second-largest advance on the S&P. Meanwhile, Royal Caribbean Cruises ($RCL) entered into agreements with a select group of existing holders regarding its 6% convertible senior notes due in 2025, in return for cash and common stock, causing the stock to soar by 9.8%, positioning it as the third-largest gain on the index.
In commodity trading, West Texas Intermediate crude oil experienced a slight increase of 0.5%, settling at $73.31 per barrel. The price of gold slipped by 0.6%, reaching $2,430.42 per ounce, while silver recorded a marginal increase of less than 0.1%, hitting $27.22. Overall, the stock market demonstrated resilience following cautious remarks from the Fed, driving investor confidence and encouraging a search for value amidst fluctuating economic signals..