Stocks on Wall Street are on the rise once again, as market jitters that shook global markets last week begin to ease. The S&P 500 saw a 1.3% increase in early trading, on track for its second consecutive day of at least 1% gains after experiencing a sharp three-day decline that erased over 6% of its value. Meanwhile, the Dow Jones Industrial Average climbed by 251 points, or 0.6%, and the Nasdaq composite surged 1.9% by 9:35 a.m. Eastern time.

Several factors contributed to the recent market downturn, including concerns stemming from Japan, which now appear to be subsiding. Last week, the Bank of Japan made a slight adjustment to its interest rate policy, a move that sent shockwaves through global markets. This decision disrupted a popular strategy among hedge funds and other investors who had been borrowing at low rates in Japanese yen to invest in other markets worldwide.

The rate hike led to a surge in the yen’s value, triggering a withdrawal of investments by these funds and intensifying market losses. This turmoil resulted in the Nikkei 225 experiencing its worst drop since the 1987 Black Monday crash.

In a speech to business leaders on the northern island of Hokkaido, Shinichi Uchida, deputy governor of the Bank of Japan, acknowledged the recent market instability, which was also influenced by concerns about a slowing U.S. economy. Uchida provided reassurance that Japan’s central bank is prepared to be patient, stating that it “will not raise its policy interest rate when financial and capital markets are unstable.” He also expressed confidence that the U.S. economy would achieve a “soft landing” and avoid a recession, despite fears that the Federal Reserve’s sustained high-interest rates could hinder growth.

Wall Street Displays Signs of Optimism Despite Concerns

This assurance from Japan offered a boost to markets that were anxious about potential further rate hikes. However, it also highlighted lingering risks, suggesting that the unwinding of the popular “carry” trade could continue. John Lynch, chief investment officer for Comerica Wealth Management, noted that some hedge funds and investors might still be “offsides.”

Despite these concerns, signs of renewed optimism are emerging on Wall Street. A measure of how much professional investors are willing to pay to safeguard against future losses in the S&P 500 index has eased. Additionally, Treasury yields rose, indicating that investors feel less compelled to hold the safest assets.

The yield on the 10-year Treasury climbed to 3.93% from 3.90% late Tuesday. It had briefly dipped below 3.70% on Monday when market fears were at their peak, with speculation that the Federal Reserve might need to convene an emergency meeting to rapidly lower interest rates.

currently anticipates that the Fed will reduce its main interest rate at its next scheduled meeting, with predictions ranging from a quarter-point cut to a more substantial half-point reduction.

In the meantime, earnings reports from major U.S. companies continue to flow in, with the S&P 500’s growth potentially marking the best since 2021, according to FactSet.

CVS Health surpassed profit expectations for the latest quarter but fell short on revenue, leading to a 1.3% drop in its stock after it also lowered its profit forecast for the full year.

Airbnb plummeted 14.3% after its second-quarter profit failed to meet analysts’ expectations, and the company indicated signs of slowing demand in the U.S.

Super Micro Computers, another notable decliner, dropped 14.4% after reporting weaker-than-expected results. Despite being one of the year’s biggest winners due to excitement over artificial intelligence technology, the stock’s earlier 300% surge has been met with skepticism by critics who argue that the AI frenzy has driven prices too high.

Criticism has been particularly directed toward stocks like Nvidia and Apple, part of the “Magnificent Seven” that have largely propelled the S&P 500’s record-setting performance this year, overshadowing weaknesses in other market sectors struggling under high-interest rates.

Recent underwhelming earnings reports, starting with Tesla and Alphabet, have contributed to pessimism and dragged down Big Tech stocks. Nvidia, for instance, dropped nearly 19% from the beginning of July through Monday. However, it rebounded 3.7% on Wednesday, contributing significantly to the market’s upward momentum, alongside gains from Microsoft and Apple.

Meanwhile, international stock markets rallied across much of Europe and Asia as calm returned to global markets.