U.S. stocks fell sharply on Monday as part of a global market sell-off centered around U.S. recession fears. Japan’s Nikkei 225 plunged 12% in its worst day since the 1987 Black Monday crash for Wall Street.
The Dow Jones Industrial Average dropped 821 points, or 2.1%. The Nasdaq Composite lost 2.7%, and the S&P 500
slid 2.3%. The blue-chip Dow earlier fell as much as 1200 points.
Fears of a U.S. recession were the main culprit for the global market meltdown after Friday’s disappointing July jobs report. Investors are also concerned that the Federal Reserve is behind in cutting interest rates to bolster an economic slowdown, with the central bank choosing instead to keep rates at the highest in two decades last week.
Investors are continuing to sell off megacap tech stocks and the once-hot artificial intelligence trade. Tech shares were among the worst performers Monday:
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In Asia overnight, Japan stocks confirmed a bear market as Asia-Pacific investors had their first chance to react to the sour jobs figures in the U.S. from Friday. The 12.4% loss on the Nikkei — which closed at 31,458.42 — was the worst day for the index since the “Black Monday” of 1987 hit Wall Street. The loss of 4,451.28 points on the index was also the largest in terms of points in its entire history. The Dow lost more than 22% in a single day on Black Monday.
Other global markets were also severely impacted:
U.S. Treasury yields tumbled on the recession fears and as investors flooded into bonds for a global safe haven. Bond prices move inversely to yields. The benchmark 10-year note on Monday yielded 3.76%, its lowest level since June 2023.Bitcoin tumbled from nearly $62,000 Friday to around $52,000 on Monday.
Europe’s Stoxx 600 was off by 2.4%. The CBOE Volatility Index
was last trading at 46, after reaching as high as 53, its highest level since the early days of the pandemic in 2020. There is also chatter about the unwind of yen “carry trade” adding fuel to the global market decline after the Bank of Japan raised interest rates last week, reducing the interest rate differential between Japan and the U.S. That has has contributed to the yen rising in value vs. the dollar, ending a practice of traders borrowing in the cheap currency to buy other global assets.
“The market was whistling past the graveyard. I think people were basically lulled into a sense of security, yet the market itself was very vulnerable to to a correction — and the weaker than expected economic and employment data provided that catalyst for correction,” said Sam Stovall, CFRA Research chief investment strategist. The S&P 500 is currently around 8% off from its recent high.
Chicago Fed President Austan Goolsbee, while avoiding commitment to a specific course of action, indicated that interest rates at their current level may be too “restrictive” on CNBC’s “Squawk Box” on Monday.
If economic conditions meaningfully deteriorate, the central bank will “fix it,” Goolsbee added.
Crypto stocks – Several bitcoin-related names were hit following the cryptocurrency’s drop below $50,000 for the first time since February. Robinhood plummeted more than 10%, and MicroStrategy plunged more than 8%. Others like Coinbase and Marathon Digital each fell around 5%.
Kellanova – Shares of the snack food company jumped 13%, hitting a new 52-week high during the session, following reports that candy maker Mars is exploring a takeover of the company.
Nvidia, Super Micro Computer – Nvidia and Super Micro Computer sank more than 6% each as U.S. recession fears sparked a global market sell-off and investors rotated out of 2024′s winning AI names. Semiconductor stocks sold off alongside, with the VanEck Semiconductor ETF dropping 3%. Micron Technology and Taiwan Semiconductor Manufacturing lost more than 5%, while Arm Holdings declined 7%.
‘Violent rotations’ will be here in the near term, says Wolfe Research
Wolfe Research believes the current market volatility will be here to stay over the coming months.
“Given mixed results from the Mag 7 last week, election uncertainty and now concerns over the U.S. economic outlook, we expect these violent rotations to continue into the weaker seasonally August-October periods,” chief investment strategist Chris Senyek wrote in a Monday note.
Senyek warned that the market’s rate cut expectations are once again getting ahead of the Federal Reserve. According to the CME FedWatch tool, fed funds futures are now pricing in an 81.5% probability of the central bank lowering rates by 50 basis points at its September meeting.
