Stock markets went into a meltdown on Monday amid fears that the US could be heading for a recession, pushing investors into panic-selling mode, market data shows.
The US has seen an unexpected rise in the unemployment rate, according to July payrolls report unveiled on Friday. This led to markets betting on the Federal Reserve cutting rates in September by a full 50 basis points, and sparked debate among economists about the overall health of the US economy, with its enormous influence in the global financial market.
US stocks closed sharply down on Friday, with the technology-heavy Nasdaq Composite falling into correction, but Monday kicked off with new drops.
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05 August 2024
The Dow was down around 1,000 points, or 2.7%, as Monday’s session neared the close. The Nasdaq was trading 3.8% lower, while the S&P 500 was 3.2% off. Earlier in the session, the Dow was off by more than 1,200 points.
Fears of a US recession were the main culprit for the global market meltdown after Friday’s disappointing July jobs report.
Some analysts say the global economy is fine and that investors are overreacting. “The market panic appears disproportionate,” EY chief economist Gregory Daco wrote in a note to clients, as quoted by CNN. “In our opinion, the core issue lies with the Fed being behind the curve, in action and in thought, rather than a significant economic downturn.”
Chief economist at RSM US, Joseph Brusuelas, described the global selloff as a “classic market panic.” It is important to remember that the market is not the economy, he said.
Jim Smigiel, chief investment officer at SEI, echoed the sentiment, writing: “Quite frankly, this selloff is now overdone.”
Several popular online trading platforms, including Fidelity, E-Trade and Robinhood, were reportedly experiencing technical difficulties on Monday amid the global stock selloff. Brokerage company Charles Schwab said its clients were having trouble logging on and added their teams were working “to resolve the issue as quickly as possible.”
Ed Yardeni from Yardeni Research told Bloomberg the stock market sell-off is not necessarily indicative of a US recession.
“The sell-off here is to a large extent attributable to the unwind of the so-called carry trade... A lot of speculators went and borrowed in Japan at zero interest rates, raised a lot of money… and used it to speculate in other parts of the world. Now it’s all coming unglued, and there is a lot of margin calls.
“I don’t think that what we’re seeing here is attributable to an imminent recession nor that we’re in recession now, and I think this too shall pass.”
The Bloomberg Magnificent 7 index, which tracks America’s seven largest tech companies, has regained much of the losses it suffered at market opening and was down about 2.7% around 15:30 GMT, up from the 9% drop it saw earlier in the day. Nvidia and Apple are still its biggest losers, but the former is now down about 6% from 15% at market opening, while the latter is down about 4% after its 11% plunge.
Most US stocks and key market indicators appeared to have regained some ground from their lows at market opening, but were still sharply down one hour into Monday’s trading session. Wall Street’s ‘fear gauge’, the CBOE VIX Index, which monitors market volatility, has dropped to around 42 from a high over 65.
J.D. Vance, Donald Trump’s running mate in this year’s presidential election, says Vice President Kamala Harris, Trump’s rival for the White House, doesn’t have what it takes to deal with the unraveling stock market crisis.
“This moment could set off a real economic calamity around the globe. It requires steady leadership – the kind President Trump delivered for four years. Kamala Harris is too afraid to answer media questions and cannot lead us in these troubled times,” he wrote on X (formerly Twitter).
Shares of large US banks fell in morning trading, with JP Morgan down 2.4%, Morgan Stanley falling 3.6%, and Bank of America trading 3.4% lower. Shares of Wells Fargo are plunging 4.3%, Citigroup is down 5.4%, and Goldman Sachs is 3.5% in the red.
“Selloffs that manifest themselves through wild swings in the currency markets are sharp and swift, but usually very short-lived. Markets are clearly nervous about the divergent paths central banks are taking,” Jamie Cox from Harris Financial Group said in a note to Bloomberg.
“Couple that with a potential escalation of hostilities in the Middle East and a Presidential election cycle that is rife with craziness, things are ripe for negativity,” he added, suggesting investors “use this downturn to pick up some deals.”
US tech stocks are all trading in the red on Monday, with Microsoft and Alphabet down by roughly 3%, while Meta dropped by 4%. Apple, Amazon, and Tesla are trading around 5% lower. Nvidia has so far plunged by roughly 8%.
A Bloomberg index tracking America’s seven largest tech companies, the so-called Magnificent 7 – Apple, Meta, Amazon, Alphabet, Tesla, Microsoft, and Nvidia, is down 9% at market opening, its worst intraday drop on record so far since 2015.
The US markets opened lower on Monday with the S&P 500 down 4.16%, the Nasdaq 100 declining 5.4%, and the Dow Jones down 2.68%.
Chicago Federal Reserve President Austan Goolsbee has brushed off concerns of a possible recession in the US.
“Jobs numbers come in weaker than expected, but not looking yet like recession. I do think you want to be forward looking of where the economy is headed for making the decisions,” he told CNBC’s Squawk Box program, vowing that the central bank would fix the economy if there are any signs of “deterioration.”
According to Daniel Tan, portfolio manager at Singapore-based Grasshopper Asset Management, the US Federal Reserve will likely cut rates twice by the end of the year, by a total of up to 75 basis points. In a note to Reuters, he said he expects the declining interest rate environment to allow emerging market bonds to perform well, but noted that the stocks sell-off may continue “given the significant rally in technology stocks earlier this year and investors seeking to sell assets to cover losses.”
Less than an hour away from the start of trading in the US, Nasdaq 100 futures are down nearly 6%, while S&P 500 futures are 4.6% lower.
Art Hogan, chief market strategist at B. Riley Wealth, expects the stock market turmoil to be temporary.
“This isn’t a Category 3 hurricane… Markets can find themselves overreacting and investors glom on to anything as an excuse to take profits,” he told Reuters.
European stock markets, which somewhat stabilized after the morning sell-off, have started to slump again in afternoon trading. The UK’s FTSE 100 was down 2.9% as of 12:10 GMT, while Europe’s Stoxx 600 dropped by 3.3%.
“Positioning has been a big driver of recent market moves. US equities, particularly the tech sector, [were] over-owned and some froth needed to be cleared… We do not see the correction in risky assets as a start of a downturn. In our view, correction and clean-up of positions does make sense,” Mohit Kumar, chief economist for Europe at Jefferies investment management firm, told Reuters.
US Treasury yields plunged on Monday, with the yield on the benchmark ten-year note down by 5 basis points to 3.745%, its lowest level since July 2023. The two-year Treasury yield dropped by more than 11 basis points to 3.754%.
Some investors see the tumble in US tech stocks as a blessing in disguise, as it gives them an opportunity to buy.
“We’ve been looking to potentially get into some of those expensive names and frustrated we haven’t had an opportunity, and now we’re getting there,” said Lamar Villere, portfolio manager at Villere & Co.
Fundstrat market analyst Tom Lee told CNBC he does not expect the stock market to crash, but start climbing again once volatility subsides.
“A lot of this depends on whether financial conditions in the US start to tighten… With interest rates falling and the consumer still in pretty good shape, this all may look like a growth scare,” he stated.
The US dollar has lost around 0.5% against major currencies. It is currently trading near its five-month low.
The Japanese yen hit its highest level against the US dollar since January, as investors turned to safe-haven assets amid the stock market meltdown. The currency surged by 3.4% to 141.675 per dollar, before easing somewhat later in the session.
South African stocks and the rand have plunged as investors started to shun risk-sensitive assets amid the global equities selloff. As of 10:45 GMT, the rand was down about 2% to 18.6 against the US dollar, a nearly two-month low. The country’s Top-40 stock index was also down by about 2.2%.
The Swiss franc has jumped to its highest level against the euro in nearly a decade as investors turned to the safe-haven currency amid the stock market turmoil. The franc rose as high as €1.0856 early on Monday, up by some 3.5% and its highest level since January 2015.
The CBOE VIX Index, which measures stock market volatility and is known as the Wall Street’s ‘fear gauge’, soared 115% to 50 points on Monday, its highest level in more than four years.
“This price action isn’t technical but is instead seen as fear trading, where investors reduce their risk exposure and seek safety,” Pierre Veyret, technical analyst at ActivTrades, told MarketWatch.
US tech stocks continue to edge lower, with Tesla shares down 4.2% in pre-market trading. Analysts warn the Nasdaq 100 is in for its steepest opening drop in over four years.
The price of gold showed some volatility amid the stock sell-off, but analysts told Reuters that it still retains its status as a safe haven. Spot gold was slightly down by 0.8% at around 09:00 GMT, while US gold futures were down 0.1%.
The stock market turmoil is impacting commodity markets, with both oil and gas prices slumping. Both the global benchmark Brent and US West Texas Intermediate (WTI) crude oil futures have dropped by nearly 2%, while European natural gas futures plunged by as much as 3.3% as of 10:00 GMT.
Analysts doubt the global stock sell-off will have lingering effects on the Russian market, with sanctions working as a shield.
“For Russian equities, the determining factors under... sanctions are the dynamics of domestic demand and the monetary conditions. Due to [Russia’s] separation from international capital markets, the influence of their dynamics on our stock market is diminishing,” Alina Poptsova, stock market analyst at Alfa-Capital Management, told RBK news outlet.
The Russian stock market started the week lower, reacting to the global financial meltdown. Both the ruble-denominated MOEX index and the dollar-denominated RTS lost just over 2% as of 9:30 GMT.
“The markets are in meltdown and it’s a sea of red across the world. The rapid move in the yen is putting downward pressure on Japanese equities, but it’s also driving an unwind of a major carry trade – investors had leveraged up by borrowing in yen to buy other assets, chiefly US tech stocks.
We are basically seeing a mass deleveraging as investors sell assets to fund their losses. The rapidity of the move has caught a lot of investors off guard; there’s a lot of panic selling now, which is what causes these non-linear reactions in asset prices to pretty straightforward fundamental dynamics,” Kyle Rodda, senior financial market analyst at Capital.com, told Reuters.
The sell-off in US markets has extended beyond chipmakers, with Nasdaq 100 futures falling 3.6% in pre-market trading and S&P 500 futures down 2.3%.
Chinese stocks, which have been holding up against the global market meltdown throughout the day, have ended the session in the red amid a broader risk-off sentiment across Asia. The blue-chip CSI 300 index finished trading down 1.2%, while the benchmark Shanghai Composite Index dropped 1.5% and the Shenzhen Composite Index fell 2.1%.
“The market turmoil is boosting bets on an immediate, emergency, policy response from the [US] Fed. Traders are now pricing in a 60% chance of a 25-basis-point reduction within a week. Given the central bank announced its latest decision just days ago, that would be a real sign of concern,” David Goodman from Markets Today told Bloomberg.
“The selloff in Europe is still less pronounced that the rout we saw in Asia. What will be interesting to see is whether European investors want to wait to see what US equity traders want to do, before they fully jump on the risk-off bandwagon. If so, we could be in for choppy time in FX, rates and equity markets until then,” David Finnerty, a Singapore-based FX strategist, has told Bloomberg.
France’s CAC 40 benchmark index has been down by 2.78%, Germany’s DAX plunged 2.2%, while the UK’s FTSE 100 lost 2.17% as of 08:30 on Monday morning.
All major European stock markets started Monday trading down, with shares plunging to near six-month lows in early morning trading. The pan-European benchmark STOXX 600 index dropped by 3.1% as of 07:11 GMT, its lowest since February 13. Banks have so far fallen 4.2%; the tech sector has plunged 5%.
“There are two things impacting pricing, one is the recession risk and that’s the main worry, but on top of that there is a bit of anxiety around geopolitics and the expected retaliation from Iran and Hezbollah after the Israeli strikes,” Samy Chaar, the chief economist at Geneva-based Lombard Odier private bank, told Reuters, commenting on the stock sell-off.
South Korea’s stock market saw its worst trading session since the global financial crisis of 2008, with the benchmark KOSPI stock index plunging by 8.8% amid a slump in tech stocks. The rapid sell-off triggered circuit breakers for the first time since March 2020.
Republican presidential nominee Donald Trump has blamed the current US administration for the stock market meltdown.
“The stock markets crashing. I told you so!!! Kamala [Harris] doesn’t’ have a clue. Biden is sound asleep. All caused by inept US leadership!” the former president wrote in a post on his Truth Social platform.
The Istanbul stock market halted trading for the second time on Monday after significant losses triggered a market-wide circuit breaker. The second halt took place at 07:25 GMT, as the benchmark BIST-100 index dropped 7.07% and the banking index fell 8.73%.
Taiwan stocks fell more than 8% on Monday, with the Taiex, the weighted index on the Taiwan Stock Exchange, closing morning trade at 19,830.88 points. The plunge has dragged chip giant TSMC, which produces over half of the world’s output of silicon wafers, down by 9.3%.
Indian stock market benchmarks, the Sensex and the Nifty 50, saw a heavy sell-off early on Monday, declining over 3% each in intraday trading. Analysts have blamed US recession fears and rising tensions in the Middle East.
Bitcoin’s price has dropped below $50,000 for the first time since February this year, as the effects of the global stock market turmoil are leaking into the cryptocurrency market. It touched a low of $49,351 in early Monday trading, and while it bounced back above the $50,000 threshold, it was still down 13% for the day at 08:00 GMT.
Japanese Nikkei tumbled a staggering 13% in early Monday trading, hitting seven-month lows. Investors say the index has not seen such losses since the 2011 global financial crisis.