NEW YORK — U.S. stocks bounced back, and a measure of calm returned to Wall Street after Japan’s market soared earlier Tuesday to claw back much of the losses from its worst day since 1987.
The S&P 500 was rallying in afternoon trading and on track to break a three-day losing streak. It had tumbled a bit more than 6% after several weaker-than-expected reports raised worries the Federal Reserve had pressed the brakes too hard for too long on the U.S. economy through high interest rates in order to beat inflation.
The Dow Jones Industrial Average and Nasdaq also were higher. The vast majority of stocks were climbing in a mirror opposite of the day before, from smaller companies that need U.S. households to keep spending to huge multinationals more dependent on the global economy.
Stronger-than-expected profit reports from several big U.S. companies helped drive the market.
Kenvue, the company behind Tylenol and Band-Aids, jumped 14% after reporting stronger profit than expected thanks in part to higher prices for its products. Uber rolled 7.9% higher after easily topping profit forecasts for the latest quarter.
Caterpillar veered from an early loss to a gain of 3.6% after reporting stronger earnings than expected but weaker revenue.
Several technical factors may have accelerated the recent swoon for markets, beyond weak U.S. hiring data and other dispiriting U.S. economic reports, in what strategists at Barclays called “a perfect storm” for causing extreme market moves. One is centered in Tokyo, where a favorite trade for hedge funds and other investors began unraveling last week after the Bank of Japan made borrowing more expensive by raising interest rates above virtually zero.
That scrambled trades where investors had borrowed Japanese yen at low cost and invested them elsewhere around the world. The resulting exits from those investments may have helped accelerate the declines for markets around the world.
Japan’s Nikkei 225 jumped 10.2% Tuesday to claw back much of its 12.4% sell-off the day before, which was its worst since the Black Monday crash of 1987. Stocks in Tokyo rebounded as the value of the Japanese yen stabilized against the U.S. dollar after several days of sharp gains.
“The speed, the magnitude and the shock factor clearly demonstrate” how much of the moves were driven by how traders were positioned, according to the strategists at Barclays led by Stefano Pascale and Anshul Gupta. That could indicate it wasn’t just worries about the U.S. economy.
Still, some voices are urging caution.
Barry Bannister, chief equity strategist at Stifel, is warning more drops could be ahead because of a slowing U.S. economy and sticky inflation. He’s forecasting both will be worse in the second half of this year than what much of Wall Street expects, while saying a measure of how expensive the U.S. stock market is still looks “frothy” when compared with bond yields and other financial conditions.
The stock market’s “dip is not a blip,” he warned in a report, and called it “too soon to jump back in.”