We have seen a remarkable turnaround over the past twelve hours. The Nikkei 225 has gone from its biggest loss since 1987 to recording, at one point, its biggest-ever intraday surge. Investors will be forgiven for asking, 'was that it?'
Yesterday's slump certainly seemed like an overreaction, particularly in Japanese markets. The VIX's huge one day spike was on a par with 2008 and 2020, but those were global crises, whereas Monday was the unwinding of the yen carry trade and a growth panic in US markets. The Fed has been right to avoid any silly talk of an emergency rate cut, and the selloff in tech stocks has helped to trim some of the exuberance that we saw back in June and early July.
Stocks usually find the going tougher in August and September, so further declines of a more gentle sort would be entirely consistent with a normal year, though investors shouldn't discount the possibility that yesterday's slump marked a reset for the time being, with dip buyers likely to add cautiously if this overnight rebound gathers pace.
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