Wall Street experienced a sharp decline on Monday, marking the end of a global market rout that saw Japan’s main stock index suffer its worst day in 37 years. The benchmark S&P 500 dropped 3%, its most significant one-day drop since September 2022, while the Nasdaq Composite fell 3.4%. This sell-off was widespread, with over 95% of stocks in the S&P 500 falling. Large tech companies, which had been driving much of the market rally earlier in the year, were among the hardest hit. Nvidia, for example, saw its shares drop as much as 15% in early trading before closing down 6%.
Antonio Cavarero, head of investments at Generali Asset Management, described the sudden shift in the market as going „from a warm summer’s day straight into autumn.“ Despite the significant losses earlier in the day, conditions improved by the end of Monday. The Vix index, which measures expected stock market volatility, known as Wall Street’s „fear gauge,“ was at 38 by Monday evening. While this was above recent levels and the long-term average, it was well below the four-year high of 65 it hit earlier in the day. Additionally, both the S&P and Nasdaq recovered some of their morning losses.
The market turmoil was fueled by concerns that the Federal Reserve had been slow to respond to signs of a weakening US economy. Investors feared that the Fed might need to implement rapid interest rate cuts to catch up. Market expectations now suggest 1.17 percentage points of cuts over the Fed’s final three meetings of the year, including one or two half-point cuts and one quarter-point cut. Speculation about an emergency cut before the September meeting was mostly dispelled by the end of the day.
Priya Misra, a portfolio manager at JPMorgan, characterized the current market situation as a „tantrum,“ predicting continued panic until the Fed shows signs of action. The global sell-off was further exacerbated by the unwinding of the yen carry trade, where traders borrowed in yen at low interest rates to invest in risky assets. Tokyo’s Topix index experienced a 12.2% decline, the most significant sell-off since „Black Monday“ in October 1987, erasing its gains for the year.
The strengthening of the yen, up about 12% since mid-July, contributed to the market turmoil. Last week’s interest rate hike by the Bank of Japan further bolstered the yen, reaching ¥144.11 against the dollar on Monday. Despite the challenges faced by the market, some analysts viewed the correction as a necessary adjustment.
The Federal Reserve’s decision to keep rates unchanged at its recent meeting, coupled with weaker than expected US jobs data, led to concerns that the central bank had erred in not cutting rates. Rick Rieder, chief investment officer of global fixed income at BlackRock, believed that interest rates were too high and advocated for a quicker reduction to around 4%.
However, not all experts agreed on the necessity of rapid rate cuts. John McClain, portfolio manager at Brandywine Global, cautioned against an emergency move, warning that it could create panic. The market’s reaction to the rate situation was deemed excessive by some.
In addition to the market pressures, Warren Buffett’s Berkshire Hathaway disclosed a reduction in its position in Apple and an increase in its cash reserves to a record $277 billion. Retail investors also faced challenges accessing their brokerage accounts at companies like Fidelity and Charles Schwab, adding to the market unease.
Political figures, including former President Donald Trump, used the market downturn to criticize the Biden administration and Democratic presidential nominee Kamala Harris. Trump highlighted the contrast between what he termed „Trump prosperity“ and the potential „Kamala Crash and Great Depression of 2024.“
Despite the initial market turmoil, Wall Street saw some relief as US ISM services sector data came in slightly above expectations. Daniel Ivascyn, chief investment officer at Pimco, emphasized that the economy was not collapsing, providing a glimmer of hope amidst the uncertainty.
The global market turbulence extended beyond Wall Street, impacting markets in Asia, Europe, and the cryptocurrency sector. The price of bitcoin and ether experienced significant declines, reflecting the widespread nature of the market upheaval.
In conclusion, the market’s sharp decline on Monday highlighted concerns about the Federal Reserve’s response to economic indicators and the broader global economic landscape. While the market experienced significant losses, some analysts viewed the correction as a necessary adjustment. The ongoing uncertainty underscores the importance of monitoring economic data and central bank actions to navigate the volatile market conditions.