Stock markets stabilize after the S&P 500's worst day in almost two years

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Stocks in the the U.S. rebounded on Tuesday as financial markets regained their footing after a sharp selloff on Monday. The Dow Jones Industrial Average, which fell more than 1,000 points yesterday, rose 294 points, or 0.8%, to closed at 38,998, while the S&P 500 gained 1% after suffering its worst one-day plunge in more than two years. The tech-heavy Nasdaq Composite also climbed 1%. The steadier trading followed three days of market turmoil sparked by signs the U.S. economy is slowing and concerns that the Federal Reserve has waited too long to cut interest rates. Based on that economic data, Wall Street now expects the Fed to cut rates more deeply in September than they had previously, and to usher in more cuts throughout 2024. "The recovery in equities so far today has lightened the mood," analysts with Capital Economics said in a report on Tuesday. "[T]he risks of a 'hard landing' have risen but one is still not the base case, not least because the Fed will probably start easing monetary policy fairly soon." All economists surveyed by financial data company FactSet now expect the Fed to cut its benchmark rate by 0.5 percentage points at its September 17-18 meeting, or double prior forecasts for a 0.25 percentage point cut. Sentiment was also helped by a report Monday by the Institute for Supply Management that said growth for U.S. services businesses was a touch stronger than expected, led by the arts, entertainment and recreation sectors, along with accommodations and food services. The U.S. economy is still growing, and most economists don't expect recession. The U.S. stock market is still up a healthy amount for the year, with double-digit percentage gains for the S&P 500, the Dow and the Nasdaq. What hurt stocks? The stock market rout began on Thursday after weak reports on manufacturing and construction, which stoked fears the U.S. economy may finally be buckling under the pressure of high interest rates. Then on Friday, investors were further spooked by a monthly jobs report that was far weaker than expected, fueling Wall Street's anxiety that the U.S. could be heading for a recession. Other catalyts also led investors to sell, including a view that some large technology players were overvalued. Although tech companies' earnings have been solid this year, they haven't wowed investors. Nvidia, the chip company whose technology powers artificial intelligence, shed 23% of its value between July 31 and August 5. Its shares rebounded $3.80, or 3.8%, to $104.25 Tuesday. Markets have romped to dozens of all-time highs this year, in part due to a frenzy around artificial intelligence technology, and critics have been saying prices looked too expensive. Other worries also are weighing on the market, with investors fretting that the Israel-Hamas war and other global hotspots could cause sharp swings for the price of oil. Despite Tuesday's rebound, some Wall Street analysts warn there could be more volatility. Barry Bannister, chief equity strategist at Stifel, is warning more drops could be ahead because of a slowing U.S. economy and sticky inflation. He had been predicting a coming "correction" in U.S. stock prices for a while, including an acknowledgement in July that his initial call was early. That was two days before the S&P 500 set its latest all-time high and then began sinking. —With reporting by the Associated Press.