Wall Street steadies after its worst day in nearly 2 years, and stocks are mixed

Some calm is returning to Wall Street, and U.S. stocks are holding steadier after Japan’s market soared earlier Tuesday to bounce back from its worst loss since 1987.

The Standard & Poor’s 500 was 0.2% higher in early trading and on track to break a brutal three-day losing streak. It had tumbled a bit more than 6% after several weaker-than-expected reports raised worries the Federal Reserve had pressed the brakes too hard for too long on the U.S. economy through high interest rates in order to beat inflation.

The Dow Jones industrial average was up 337 points, or 0.87%, as of 10:31 a.m. Eastern time, and the Nasdaq composite was 112 points, or 0.7% higher.

Stronger-than-expected profit reports from several big U.S. companies helped support the market. Kenvue, the company behind Tylenol and Band-Aids, jumped 13.5% after reporting stronger profit than expected thanks in part to higher prices for its products. Uber rolled 4.3% higher after easily topping profit forecasts for the latest quarter.

Caterpillar veered from an early loss to a gain of 1.7% after reporting stronger earnings than expected but weaker revenue.

Several technical factors may have accelerated the recent swoon for markets, beyond the weak U.S. hiring data and other reports, in what strategists at Barclays call “a perfect storm” for causing extreme market moves. One is centered in Tokyo, where a favorite trade for hedge funds and other investors began unraveling last week after the Bank of Japan made borrowing more expensive by raising interest rates above virtually zero.

That scrambled trades where investors had borrowed Japanese yen at low cost and invested it elsewhere around the world. The resulting exits from those trades may have helped accelerate the declines for markets around the world.

But Japan’s Nikkei 225 jumped 10.2% Tuesday, following its 12.4% sell-off the day before, which was its worst since the Black Monday crash of 1987. Stocks in Tokyo rebounded as the value of the Japanese yen stabilized a bit against the U.S. dollar following several days of sharp gains.

“The speed, the magnitude and the shock factor clearly demonstrate” how much of the moves were driven by how traders were positioned, rather than just worries about the economy, according to the strategists at Barclays led by Stefano Pascale and Anshul Gupta.

Still, some voices along Wall Street are continuing to urge caution.

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 acknowledgment 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.

While fears are rising about a slowing U.S. economy, it is still growing, and a recession is far from a certainty. The U.S. stock market is also still up a healthy amount for the year so far. The S&P 500 has 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.

Elsewhere, European markets were mostly left out of the rebound, with stock indexes down modestly in Germany France and the United Kingdom.

Choe writes for the Associated Press