U.S. stocks rebounded on Thursday after a sharp sell-off in the previous session, which followed the Federal Reserve’s quarter-point rate increase and comments from Chairman Kevin Warsh about the risks of persistent inflation.
Major indexes moved higher in early trading as Treasury yields broadly declined alongside oil prices. The Dow Jones Industrial Average rose by about 300 points after losing more than 600 points on Wednesday. The S&P 500 gained 1%, while the Nasdaq Composite advanced 1.3%.
Technology shares led the recovery, supported by lower bond yields. Even so, some market participants argue that investors may be moving too quickly if they are buying back into stocks after the recent drop.
Scott Rubner, head of equity and equity derivatives strategy at Citadel Securities, said the supply-demand backdrop heading into month-end remains unfavorable and that the technical picture is still working against equities. In his view, stocks could trade lower over the next two weeks.
Rubner added that, for the rest of September, several important sources of demand are either fading or have already been deployed, while potential sources of supply are rising. He also noted that September has historically been the weakest month for stocks. According to the Stock Trader's Almanac, the S&P 500 has posted an average September decline of 0.7% since 1950.
JPMorgan’s trading desk is also taking a cautious stance. The bank said it is maintaining a tactically cautious/neutral view for now. It added that lower oil prices and lower bond yields would be the factors most likely to shift that view to bullish.
According to JPMorgan traders, the most likely outcome is that markets get the signals they need from Fedspeak and the Middle East and move higher. However, they stressed that the timing remains uncertain, and current positioning suggests there could still be further downside if uncertainty persists.
