U.S. stocks have fully recouped the losses sustained during a sharp early-August sell-off, with the S&P 500 and Nasdaq composite both pushing back to levels seen before the rout began. The benchmark S&P 500 rose to 7,674 on Wednesday, up 0.43%, while the Nasdaq gained the same percentage to reach 26,180, marking a complete recovery from losses triggered by spiking bond yields and fears of a hawkish Federal Reserve. The Dow Jones Industrial Average climbed 0.98% to 53,277, adding a more than 500-point gain. The August sell-off, which saw the S&P 500 fall roughly 4% from its mid-July highs, was driven by a rapid rise in long-term Treasury yields. The 30-year yield briefly breached 5.33% last Tuesday, its highest level since June 2007, while the 20-year yield hit 5.30%. Those moves forced a broad re-pricing of risk across equity markets, with rate-sensitive sectors like technology and real estate taking the heaviest blows. The catalyst for this week’s recovery has been a dramatic intervention by the Treasury Department. On Wednesday, Treasury Secretary Scott Bessent announced the department would more than double the size of its government debt repurchases, raising the maximum size of liquidity-support buybacks for 10- to 30-year securities to at least $4 billion per operation starting September 9. The announcement immediately sent yields lower, with the 20-year yield pulling back to 5.17% and the 30-year easing to 5.19%. The Treasury’s move has bought breathing room for equities, but strategists caution that the underlying drivers of the bond rout – persistent inflation tied to the Hormuz supply crisis and expectations that the Fed may need to hike rates – remain firmly in place. The technology sector has been the standout performer in the recovery. The Invesco QQQ Trust gained 0.02% on Thursday, while AI and quantum computing-focused ETFs such as the Defiance Quantum ETF surged 0.77%. Investors are betting that rate cuts will eventually materialize even as the Fed holds its line on inflation. The CBOE Volatility Index, known as the VIX, fell to 15.13, its lowest level in several weeks, signaling that market anxiety has eased significantly. That decline from a peak above 20 during the August rout reflects growing confidence that the worst of the bond-driven sell-off is behind us. Despite the recovery, concerns persist. Treasury yields remain elevated by historical standards, with the 10-year yield at 4.71% and the 20-year at 5.17%. The Federal Reserve’s next policy meeting is in September, and markets are pricing in just 20 basis points of easing from the Fed for the rest of 2026, down sharply from 50 basis points expected a month ago. The war-related oil supply crisis continues to weigh on inflation expectations, keeping the Fed in a difficult position. Goldman Sachs has warned that if Hormuz tensions persist, Brent crude could surge above $120 per barrel in the fourth quarter, potentially triggering further rate hikes rather than cuts.
Sources: Yahoo Finance; CNBC; StreetStats; Federal Reserve H.15 release
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