GitLab

By Jamie McGeever

ORLANDO, Florida, Feb 5 (Reuters) - "Bouncebackability."

This Britishism is normally connected with cliche-prone soccer managers trumpeting their groups' capability to react to defeat. It's not likely to find its way across the pond into the Wall Street crowd's lexicon, but it perfectly sums up the U.S. stock market's resilience to all the problems, shocks and everything else that's been tossed at it just recently.

And there have actually been a lot: U.S. President Donald Trump's tariff flip-flops, extended appraisals, extreme concentration in Big Tech and disgaeawiki.info the DeepSeek-led turmoil that recently cast doubt on America's "exceptionalism" in the global AI arms race.

Any among those issues still has the prospective to snowball, triggering an avalanche of selling that might press U.S. equities into a correction and even bear-market area.

But Wall Street has become extremely durable considering that the 2022 rout, especially in the last 6 months.

Just look at the artificial intelligence-fueled turmoil on Jan. 27, spurred by Chinese start-up DeepSeek's revelation that it had actually a large language design that could attain comparable or better outcomes than U.S.-developed LLMs at a portion of the expense. By many measures, the marketplace move was seismic.

Nvidia shares fell 17%, slicing nearly $600 billion off the company's market cap, the greatest one-day loss for any company ever. The value of the wider U.S. stock market fell by around $1 trillion.

Drilling deeper, analysts at JPMorgan discovered that the rout in "long momentum" - essentially purchasing stocks that have been performing well just recently, such as tech and AI shares - was a near "7 sigma" relocation, or seven times the standard deviation. It was the third-largest fall in 40 years for this trading strategy.

But this impressive move didn't crash the market. Rotation into other sectors accelerated, and around 70% of S&P 500-listed stocks ended the day greater, implying the wider index fell only 1.45%. And buyers of tech stocks quickly returned.

U.S. equity funds drew in nearly $24 billion of inflows recently, technology fund inflows hit a 16-week high, and momentum funds brought in positive flows for a fifth-consecutive week, according to EPFR, the fund flows tracking firm.

"Investors saw the DeepSeek-triggered selloff as a chance rather than an off-ramp," EPFR director of research study Cameron Brandt wrote on Monday. "Fund flows ... recommend that a lot of those investors kept faith with their previous assumptions about AI."

PANIC MODE?

Remember "yenmageddon," the yen bring trade volatility of last August? The yen's abrupt bounce from a 33-year low against the dollar triggered worries that financiers would be required to offer assets in other markets and nations to cover losses in their huge yen-funded carry trades.

The yen's rally was extreme, on par with previous monetary crises, and the Nikkei's 12% fall on Aug. 5 was the most significant one-day drop since October 1987 and the second-largest on record.

The panic, if it can be called that, spread. The S&P 500 lost 8% in two days. But it disappeared quickly. The S&P 500 recovered its losses within 2 weeks, and the Nikkei did also within a month.

So Wall Street has passed 2 huge tests in the last six months, a duration that included the U.S. presidential election and Trump's go back to the White House.

What explains the strength? There's nobody apparent response. Investors are broadly bullish about Trump's economic agenda, the Fed still appears to be in relieving mode (for now), the AI craze and U.S. exceptionalism stories are still in play, and liquidity is numerous.

Perhaps one essential chauffeur is a well-worn one: the Fed put. Investors - much of whom have actually invested a good portion of their working lives in the period of extremely loose financial policy - might still feel that, if it truly comes down to it, the Fed will have their backs.

There will be more pullbacks, and threats of a more extended decline do appear to be growing. But for now, the rebounds keep coming. That's bouncebackability.

(The viewpoints expressed here are those of the author, a writer for Reuters.)

(By Jamie McGeever; Editing by Rod Nickel)