Key points:

  • The S&P 500, Nasdaq and Dow Jones all rose after initial jobless claims fell.
  • A decline in yen trading added to the negative news impact on the market.
  • Goldman Sachs and JPMorgan raised their forecasts for a US recession.

The US stock market showed significant growth on Thursday. The S&P 500 and Nasdaq indices ended the trading session with an increase of more than 2%, which indicates positive investor sentiment.

The key factor contributing to the market growth was the decrease in the number of initial applications for unemployment benefits in the US. This figure was lower than analysts expected, which indicates the continued stability of the labor market. This, in turn, reduced investor concerns about a possible acceleration of the economic downturn.

The Dow Jones Industrial Average also showed significant growth, adding 1.76%. The S&P 500 and Nasdaq Composite indices grew even more significantly, by 2.30% and 2.87%, respectively.

Employment data supports market

All sectors of the S&P 500 index showed positive dynamics, with the biggest gains seen in the technology and communications sectors. In parallel, small-cap stocks of companies represented by the Russell 2000 index also strengthened significantly, adding 2.4%.

Among the leaders of growth in the S&P 500, shares of the pharmaceutical company Eli Lilly should be singled out, which rose by 9.5%. The positive dynamics of the shares were due to the company raising its forecast for full-year profit and exceeding the $1 billion mark in quarterly sales of its weight-loss drug Zepbound for the first time since its launch.

The published data showed that the number of new applications for unemployment benefits in the U.S. fell more than expected last week, indicating the resilience of the labor market and reducing investors’ fears about a possible recession.

Recall that earlier, after the publication of the US employment report for July, stocks fell sharply, which caused concerns about the prospects for the American economy. In addition, traders noted a reduction in carry trade activity, which also put pressure on the market.

The Cboe Volatility Index, which is often called the “fear gauge” on Wall Street, fell on Thursday, indicating a decrease in the level of uncertainty among investors.

The second-quarter reporting season is drawing to a close. Despite some disappointments at the beginning of the reporting period, investors are closely monitoring the final results of companies.

Recession risks rattle markets but don’t cause alarm yet

The publication of disappointing data on the US labor market undermined investors’ confidence in the Federal Reserve’s ability to soft-land the economy. This led to a sharp collapse in global stock markets and increased bets on interest rate cuts in the near future.

However, the scale of the sell-off was exacerbated by a simultaneous reduction in popular yen trading operations. This circumstance significantly complicated the interpretation of signals coming from financial markets regarding the real state of the economy.

There is active discussion about the probability of a recession in the US. Thus, Goldman Sachs raised its forecasts to 25%, and JPMorgan estimates the probability of a recession before the end of the year at 35%.

Copper, traditionally seen as a bellwether for the business cycle, is also signaling trouble. Prices for the metal have fallen to their lowest in 4.5 months, adding to concerns about a global economic slowdown.

The U.S. unemployment rate hit a nearly three-year high of 4.3% in July, reflecting a significant slowdown in job creation. However, many economists believe the market overreacted to the data and may be partly due to the impact of immigration.

Global stock indices have also reacted to the negative news. The MSCI global index has fallen more than 6% from its July highs, while the U.S. S&P 500 has lost more than 4% in August.