Panic trade wears off as markets rebound
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Illustration: Annelise Capossela/Axios
Global markets largely rebounded from yesterday's selloff, which was triggered by a flash crash in Japan and growing concern over the health of the U.S. economy.
Between the lines: "I think people realize that was a little bit of a panicked reaction yesterday to a big fall in Japan," David Kelly, chief global strategist at J.P. Morgan Asset Management, tells Axios in an interview this afternoon.
By the numbers: All three major U.S. stock market indexes pared declines from yesterday, led by the S&P and Nasdaq finishing up 1.0% today and the Dow up 0.8%.
- Overnight, Japan's major stock index recorded its best day since October 2008 — rising 10.2%, after suffering a 12.4% drop Monday.
The intrigue: Fresh economic data released yesterday about the U.S. services sector showed a bounce back in new orders and employment growth.
- While that data had little impact on the bloodletting yesterday, it shows that not every indicator is saying that the economy is falling off a cliff, says Kelly.
The big picture: Big market swings are normal.
- The U.S. stock market has seen a correction almost every year over the past 95 years.
- But because we've had relatively low volatility prior to the last few days, the whiplash seems more pronounced.
What we're watching: How much of an impact the yen carry trade actually has on the markets remains to be seen, and it's difficult to calculate given the speculative nature of the strategy.
- As for the strength of the U.S. economy, Kelly believes there shouldn't be as much worry there: "We've actually got a very strong economy in terms of corporate profits. ... And inflation has proven to be on a down track."
