Stocks stage bullish comeback following $6.5T selloff

investmentnews.com:

A renewed wave of dip buying spurred a rally in stocks after a roughly $6.5 trillion selloff that shook markets around the globe.

All major groups in the S&P 500 rose, with the gauge set for its biggest advance since February. After bearing the brunt of the recent meltdown, megacaps led gains on Tuesday. Following a surge in volatility to start the week, hedge funds stepped in to buy the dip in tech, according to Goldman Sachs Group Inc. Just a day later, Wall Street’s “fear gauge” — the VIX — was on track for its largest plunge in data going back to 1990.

A semblance of calm returned to global markets, following a pullback fueled by weak economic data, underwhelming tech results, stretched positioning and poor seasonal trends. Buying US shares after a slump of the scale witnessed over the past month has usually been profitable, according to Goldman Sachs. Since 1980, the US benchmark has generated a median return of 6% in the three months that followed a 5% decline from a recent high. 

“The market by any metric is ‘oversold’ and due for a bounce,” said Quincy Krosby at LPL Financial. “The lingering question now is whether the concerns that pushed the market into a cascade of selling are alleviated. Pockets of volatility are expected to continue.”

As demand for haven assets waned globally, Treasuries fell — with the rise in yields helping smooth a $58 billion auction of three-year notes in afternoon trade. Traders are also moderating expectations of deep Federal Reserve rate cuts this year. Swaps point to about 105 basis points of easing, compared to as much as 150 basis points on Monday.

“The Fed worries about systemic risk in financial markets, not disappointed investors,” said David Donabedian at CIBC Private Wealth