Strong economic S&P 500 data and solid earnings have driven a sharp turnaround in stocks, according to analysts.
The S&P 500 erased its August losses on Thursday, bouncing back from its worst start to a month in eight years. By the close, the index was up 0.4% for the month, while the Nasdaq Composite was only slightly down.
Analysts credit this recovery to positive economic reports that alleviated fears of a U.S. recession and increased the likelihood of a 25-basis-point rate cut by the Federal Reserve. Retail sales saw their biggest jump in 18 months, and jobless claims were lower than expected, both of which contributed to the market rally.
Walmart’s strong earnings also helped boost consumer-facing stocks, with the S&P 500’s consumer-discretionary sector logging its best day of the year. The broad buying wave, as noted by Mike O’Rourke of Jones Trading, lifted both tech stocks and cyclicals.
Jay Hatfield of Infrastructure Capital Advisors described the market rebound as a correction of “irrational recession fears.” Despite early August’s market turbulence, including a spike in the VIX to levels not seen since the pandemic, the market quickly recovered. The VIX fell 60% in just eight days, its fastest decline on record.
In the past six days, the S&P 500 gained 6.6%, while the Nasdaq rose 8.6%, marking their strongest stretch since November 2022. Technology stocks, in particular, led the recovery, with the S&P 500’s tech sector up 11.5% over six days. Meanwhile, small-cap stocks also surged, with the Russell 2000 index climbing 2.5% on Thursday.
Looking ahead, strong economic data should continue to support stocks, but as O’Rourke cautioned, if the data remains robust, it could reduce the need for rate cuts.
