Wall Street posts best day since 2022 as recession fears ease

Market volatility continues after initial US jobless claims rose less than expected

Traders work on the floor at the New York Stock Exchange. Reuters

Wall Street recorded its best day since 2022 on Thursday, after new data on the US labour market calmed fears of a recession.

The Dow Jones Industrial Average closed 692 points – or 1.8 per cent – higher, the S&P 500 jumped 2.3 per cent and the Nasdaq Composite rose 2.8 per cent. The volatility index dropped 14.58 per cent.

Thursday's trading was the latest chapter in a period of volatility for markets buffeted by fears of a US recession, an unexpected interest rate increase in Japan and fears of a broadening of the Israel-Gaza war.

Among the most volatile has been Japan's Nikkei, which fell 0.7 per cent on Thursday.

The index began the week down 12.4 per cent before rallying the next day, reacting to a mix of macroeconomic news and geopolitical risks in the Middle East.

New data calms recession fears

Easing concerns was a report showing initial jobless claims were lower than expected, indicating fears of a recession were premature.

Initial claims fell to 233,000 for the week ending on August 3, the Labour Department reported, lower than the forecast of 241,000.

The report carried greater significance than it typically would after another report last week showed the unemployment rate had unexpectedly risen.

That unnerved global markets, as investors feared the Federal Reserve had fallen behind the curve on cutting interest rates and that the economy could be on a prolonged downturn.

Such a reaction was a surprise to economists who considered the unemployment report to be an expected softening of the labour market – a precursor to cutting interest rates.

“We are of the view that it is more normalisation than anything else,” S&P Global chief US economist Satyam Panday told The National this week.

Markets have locked in a September rate cut, although expectations of a 50 basis point decrease are beginning to be pared back.

As of Thursday, 56.5 per cent of traders expected a 50 basis-point cut in September compared with 92.5 per cent on Monday.

“We expect the Fed to respond to recent signs of labour market softening with a rate cut in September, but as of now, we don't think the labour market is weak enough to warrant more than a 25 basis points rate cut,” Nancy Vanden Houten, senior US economist at Oxford Economics, wrote to clients.

Also boosting markets on Thursday was pharmaceutical company Eli Lilly, which rose 9.5 per cent after blowing past estimates in its second-quarter earnings.

Members of the Magnificent Seven also clawed back some of their losses.

Shares in Nvidia and Meta jumped 6.13 per cent and 4.24 per cent, with Apple, Microsoft, Alphabet, Amazon and Tesla gaining as well.