Wall Street’s major indexes experienced a significant downturn on Monday, driven by increasing fears that the United States might be heading towards a recession. This anxiety was fueled by weak economic data from the previous week, which sent shockwaves through global markets.
At the opening bell, the Dow Jones Industrial Average plummeted by 681.07 points, or 1.71%, landing at 39,056.19. The S&P 500 also dropped, losing 195.42 points, or 3.66%, to 5,151.14, while the Nasdaq Composite saw a steep decline of 1,063.63 points, or 6.34%, reaching 15,712.53.
US stock index futures mirrored this downturn, with those linked to the Nasdaq falling nearly 5%. This downward trend wasn’t confined to the US alone; stock markets from Asia to Europe also suffered, and bond yields decreased as investors sought safer assets, betting that the US Federal Reserve might need to cut interest rates swiftly to stimulate economic growth.
Significant declines were noted among megacap and growth stocks, which had previously been the main drivers of the indexes reaching record highs earlier in the year. Apple, for instance, saw its shares slump by 8.4% after Berkshire Hathaway revealed it had reduced its stake in the tech giant by almost 50%. This move suggested that Warren Buffett, the renowned investor leading Berkshire Hathaway, might be cautious about the broader US economy or the high valuations in the stock market.
Nvidia also faced a sharp decline, with its shares dropping 9.7% due to reports of delays in the launch of its upcoming artificial intelligence chips caused by design flaws. Other tech giants like Microsoft and Alphabet weren’t spared, falling by 4.7% and 6%, respectively.
The recent weak jobs report, coupled with shrinking manufacturing activity in the US and bleak forecasts from major technology firms, pushed both the Nasdaq 100 and the Nasdaq Composite into correction territory last week. Consequently, traders now see a 98.5% probability that the US central bank will cut benchmark rates by 50 basis points in September, a stark increase from the 11% chance seen just a week earlier, according to CME’s FedWatch Tool.
Big Wall Street brokerages have also adjusted their projections for the Federal Reserve’s rate decisions in 2024, now anticipating greater policy easing. Ronald Temple, chief market strategist at Lazard, remarked, “I am reluctant to believe the Fed would start the easing process with a 50 bps cut, but if the next seven weeks of data are consistent with this week’s, the Fed should be aggressive.”
In response to these developments, yields on US government bonds dropped to multi-month lows. The 10-year note last stood at 3.7379%, while the two-year note slipped to 3.7561%. The CBOE Volatility Index, often referred to as Wall Street’s “fear gauge,” surged past its long-term average of 20 points last week, reaching 53.11, the highest level since April 2020.
Amidst this turmoil, several Federal Reserve officials are scheduled to speak on the economy and monetary policy throughout the week. Any indications of forthcoming interest rate cuts could potentially calm investors. Notably, Chicago Fed President Austan Goolsbee and San Francisco Fed President Mary Daly are set to speak later in the day.
The downturn also affected futures tracking the small-cap Russell 2000 index, which dipped by 4.9%. Meanwhile, crypto-linked stocks fell as Bitcoin reached its lowest point in five months. Coinbase Global saw a 13% drop, with MicroStrategy and Riot Platforms falling by 15.8% and 12.2%, respectively.
Major US banks weren’t immune to the sell-off either, with Bank of America leading the declines, falling by 4.5%. In the currency markets, the yen and Swiss franc surged as investors moved away from riskier assets, speculating that some might be liquidating profitable trades to cover losses elsewhere.
The intense selling pressure triggered circuit breakers on stock exchanges across Asia. Japan’s benchmark Nikkei average closed 12.40% lower at 31,458.42, marking its largest one-day fall since October 1987. The broader Topix index lost 12.48% to 2,220.91.
European shares also suffered, nearing six-month lows amid the global equity sell-off fueled by fears of a US economic slowdown. The pan-European Stoxx 600 index dropped 2.6% to 487.15 points, its lowest since February 13th. The Euro Stoxx volatility index spiked to 30.26, its highest level since March 2023. Major European indexes, including Germany’s Dax, France’s Cac 40, Britain’s FTSE, and Spain’s Ibex 35, all fell by more than 2%.
In the bond market, US Treasury bonds were in high demand, with 10-year yields hitting a low of 3.723% at one point, the lowest since mid-2023. This shift towards safer assets underscored the heightened anxiety among investors as they braced for potential economic turbulence ahead.
